Louis Vuitton’s ‘V-shaped recovery’ helps LVMH survive

LVMH weathered a new round of Covid-19 lockdowns thanks to the resilient appeal of its Louis Vuitton bags.

Sales for its fashion and leather goods unit soared 18% on an organic basis in the fourth quarter, beating the 11% jump analysts expected. Shares in the luxury conglomerate rose as much as 2% in Paris on Wednesday, trading at the highest in two weeks.

Demand from Chinese consumers, who have been spending at home with travel abroad virtually impossible, has helped LVMH withstand the effects of the pandemic. Revenue in Asia and Japan, respectively, rose 21% and 5% in the period, while Europe lagged behind with a drop of almost a quarter.

Overall, organic revenue at LVMH fell 3% to €14.3bn in the fourth quarter, an improvement from the past three quarters, signalling that the dominant luxury player is on a steady recovery.

The group “managed to over-deliver significantly,” Flavio Cereda, an analyst at Jefferies, wrote in a note. “This is almost textbook definition of V-shaped” recovery for the fashion and leather goods unit, he added.

Full-year profit from recurring operations was €8.3bn according to a statement on Tuesday. Analysts expected €7.2bn.

At Louis Vuitton, the company’s cash cow, LVMH was able to put cost controls in place that limited the profit decline to 2%. Performance was also helped by price increases.

“After several years of flat prices, I think 2020 was the year to do that,” LVMH CFO Jean-Jacques Guiony said during an analyst call.

Bobby Bag

Meanwhile, Christian Dior gained market share in 2020 and the label benefited from the successful launch of the Bobby handbag. Christian Dior got exposure in July after staging a fashion show in Lecce, Italy, financial communications chief Chris Hollis said on a call.

LVMH joins Richemont and Burberry in reporting upbeat performances in the last three months of 2020. But analysts at UBS led by Zuzanna Pusz said in a note on January 20 that the recent virus flare-up in China could weigh on luxury stocks in the short-term.

While there are “risks” regarding the virus situation in China, the country “has proven quite in control over the last few quarters,” Guiony said. “It’s not the place where I would assign the largest lockdown risks.”

Luxury companies have been facing the challenge of intermittent retail shutdowns since October in many European countries. Lockdowns are particularly disruptive for the industry since it still sells the bulk of its products in stores, where sales teams cater closely to customers’ needs, an experience that’s not as easy to replicate online.

Online share

LVMH didn’t disclose the share of its online sales last year, as that rate isn’t sustainable if the pandemic gets under control and shoppers return to physical stores, Guiony added. That share was 9% in 2019. He also said there’s no reason to believe tourism— in Europe notably — will disappear forever.

“We see no particular reason we should be shutting down stores particularly in Europe,” Guiony said. “We think we can recover the lost business with tourists coming back and developing the local client base.”

LVMH’s selective retail unit, which includes Sephora and DFS, was the hardest hit in 2020 amid a halt in international travel. That unit swung to a loss of €203m for the year. Guiony warned returning that business to its pre-pandemic levels will take time.

The biggest luxury conglomerate has become even larger recently. Earlier in January, LVMH completed a deal to buy Tiffany. Alexandre Arnault, son of LVMH billionaire founder Bernard Arnault, is now helping CEO Anthony Ledru run the US jeweller.

The company plans to take about three months to dive into Tiffany’s business model and get a clearer picture of the problems it’s facing, Guiony said. The conglomerate seeks to improve its margin in the future, he said, without giving specific targets.

Bloomberg