A record-breaking run in LVMH shares was briefly halted on Friday after the company’s fourth-quarter sales update caused some disappointment over the impact of China disruption on its margins.

The company, which owns dozens of high-end labels such as Louis Vuitton and Dior, reported late Thursday that its fourth-quarter sales increased 9% as shoppers in Europe and the United States splurged during the holiday season, helping to offset COVID-19 disruptions in China.

However, some analysts focused on margins, which took some of the luster off the fourth-quarter sales increase.

“The slight wrinkle is on the margin, where the group delivered a flat operating margin year-on-year (versus consensus of +90 bps) – largely a reflection of maintaining/raising H2 marketing spend despite disrupted revenue growth,” Credit Suisse analysts wrote in a note.

LVMH Chief Financial Officer Jean Jacques Guiony said on Thursday that the company had decided to maintain marketing investments in the second half at a 30% higher level than the previous year despite lower revenue growth, but that the company had not expected such a sharp decline in business in China in December.

Dior’s holiday takeover of London department store Harrods, as well as a fashion show in Egypt with the pyramids as a backdrop, were both high-profile marketing events.

Guiony also stated that LVMH’s strategy of limiting parallel channels for its perfumes and cosmetics division was “a costly decision” that reduced profitability, but it was “the right decision” that would protect the appeal of its labels.

Parallel channels are places where retailers sell branded products at a reduced price.

Guiony claimed that rivals had been shipping large quantities of perfumes and cosmetics to China, where they were being sold at a discount for the past two years.

“We think that, to preserve capital, this is not a good idea — so we don’t do this,” he said.

Profit from recurring operations for the division fell 3% to 660 million euros ($718.61 million) for the year.

According to Stifel analyst Rogerio Fujimori, the reasons for the margin miss are “net positive” for the coming year, as the increase in marketing spending should translate into stronger top line growth, while the sales shortfall in China should be recovered.

The luxury industry in China suffered at the end of the year as a result of lockdowns, which were followed by an increase in infections when they were lifted. The luxury industry is now expected to be one of the biggest winners from the relaxation of restrictions that had kept shoppers out of Chinese stores for months.

(Adapted from OANN.com)