LVMH Sees No Wallet Shift Away From Luxury Goods as Markets Reopen – WWD
PARIS — Consumers still appear willing to spend lavishly on luxury clothes and accessories, even as markets reopen and other activities like restaurants and travel compete for their discretionary dollars, LVMH Moët Hennessy Louis Vuitton said on Monday.
The world’s biggest luxury group, which owns 75 brands ranging from Dom Pérignon Champagne to Bulgari jewelry, said its fashion and leather goods, or FLG, division was once again the star performer in the second quarter, helping to fuel a better-than-expected rise in overall revenues during the period.
The FLG activities posted sales of 7.13 billion euros in the three months to June 30, up 40 percent on an organic basis versus the same quarter in 2019, reflecting the resilience of star brands Louis Vuitton and Dior.
Vuitton alone is expected to account for more than half of LVMH’s total profits in 2021.
But executives said other brands, including Fendi, Loewe, Celine and Marc Jacobs, also gained market share and improved their profit margins, even as the group’s travel retail and hotel businesses continued to suffer from a dearth of international travel.
Commenting on the risk of so-called “wallet shift,” Jean-Jacques Guiony, chief financial officer of LVMH, said the company has been observing trends in China, where the situation normalized much earlier than in other markets.
“We have not seen demand slowing down and a shift from luxury renminbis into other categories, including experiences. So for what it’s worth, this gives us some hope that when other experiences, such as weekend vacations and so forth, become available, this will not come at the expense of luxury spending,” he said.
The company saw sustained growth in Asia and the U.S. and a gradual recovery in Europe, where local customers have partly compensated for a lack of overseas visitors.
“We’ve seen no signs of a change of pattern in the behavior of Chinese consumers and the business is really moving from strength to strength in all categories, not only fashion and leather,” he said, noting that LVMH was not growing more reliant on its Chinese customers.
“Despite the fact that we are doing very, very good business with the Chinese clients, the share of the Chinese clientele is not increasing, particularly at Vuitton and Dior. The growth with the Chinese is very strong, but it’s commensurate with the global growth of the brands,” Guiony said on a conference call with analysts.
Reporting first-half results after the market close, LVMH posted a net profit of 5.29 billion euros in the first half, up 62 percent versus the same period in 2019, and 10 times the level recorded last year at the height of the coronavirus pandemic.
Profit from recurring operations totaled 7.63 billion euros, representing an increase of 44 percent versus the same period in 2019, with fashion and leather goods accounting for 5.66 billion euros, up 74 percent.
Buoyed by the better profitability of its fashion brands, LVMH is ready to reinvest in the second half of 2021 after a year of drastic cost-cutting designed to mitigate the impact of the COVID-19 lockdowns.
“Finding out the good marketing strategies and developing true distribution strategies is of the essence, and 2020 and the pandemic, hopefully, was just a pause in that,” Guiony said. “The current level of growth that we are experiencing allows for a significant increase in cost without incurring major impact on margins.”
And while he reiterated that LVMH was not ready to make another major acquisition, after completing its $15.8 billion purchase of Tiffany & Co. in January, it will take an “opportunistic” approach to smaller investments — as evidenced by the flurry of activity over the last few months.
Since April, the group has increased its stake in Tod’s Group to 10 percent; taken full control of Emilio Pucci; acquired a minority stake in Phoebe Philo’s new independent, namesake house, and raised its stake in Virgil Abloh’s luxury streetwear label Off-White to 60 percent.
The deal with Abloh also gives the designer leeway to launch brands and seal partnerships across the full range of the luxury conglomerate’s activities.
Beyond the fashion division, beauty retailer Sephora said last week it was buying British online beauty retailer Feelunique, while the Moët Hennessy wines and spirits division recently teamed up with Campari to launch a joint venture e-commerce business to sell premium wines and spirits across Europe.
Guiony made clear that LVMH’s priority was to secure Abloh’s continued presence at the helm of the men’s business at Vuitton, where since 2018 he has ushered in a new inclusive definition of luxury, and recently unveiled a line of sneakers codesigned with Nike.
“Over the years, he helped us define a very precise and compelling style at Vuitton, and I think the Vuitton men’s business, before him and with him, are very different and much better today,” Guiony said.
“We’ve been able to experience, particularly at Vuitton, the immense talents of Virgil, and if there are collaborations that could generate brand enhancement, or nice products, or anything with him, we would obviously consider it as we speak,” he added.
The group detailed some of the initiatives it has planned across its divisions in the second half. Dior is gearing up for the reopening of its historic headquarters on Avenue Montaigne in Paris in an innovative format that will include a restaurant, while Tiffany will launch a new gold jewelry collection.
Sephora is due to open 200 locations in the U.S. this fall as part of its partnership with Kohl’s Corp., while travel-retail business DFS is preparing openings in 2022 in Brisbane, Australia, and Queenstown, New Zealand. Guerlain is gearing up for a major launch in high-end perfumery, and Fenty Beauty will introduce new powders.
Bernard Arnault, chairman and chief executive officer of LVMH, said l highlights of the first half included the reopening of the La Samaritaine department store in Paris, for which he was joined by French President Emmanuel Macron.
“Within the current context, as we emerge from the health crisis and see a recovery in the global economy, I believe that LVMH is in an excellent position to continue to grow and further strengthen our lead in the global luxury market in 2021,” he said in a statement.
Group sales rose 89 percent year-on-year on a reported basis to 14.7 billion euros in the second quarter, following a 32 percent jump in the first quarter. In organic terms, sales were up 84 percent, beating the Bloomberg consensus forecast for a 72 percent increase.
Compared with 2019, group sales increased 14 percent in like-for-like terms during the quarter. Sales of wines and spirits were up 7 percent, while watches and jewelry posted a 9 percent increase. Perfumes and cosmetics were down 1 percent, and selective retailing fell 19 percent.
Guiony said DFS and luxury travel operator Belmond would struggle to break even. “The season is likely to be too short. We see a concentration of good business only on a few days in a week, and a few weeks in a month, or a few months in a year, basically, so it’s not sufficient, probably, to absorb all the cost base,” he said.
This means that for now, items like Vuitton’s Capucines handbag and Dior’s Dioriviera summer capsule will continue to power the group as it leads the luxury sector back to recovery.
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