LVMH results – good news and bad, but Arnault plays a waiting game
By Yasameen Noorian

Do you want the good news or the bad news about LVMH because we saw both in yesterday’s results release? Ok, first the bad …

Feb 04, 2015
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Do you want the good news or the bad news about LVMH because we saw both in yesterday’s results release?

Ok, first the bad news. Profits from on-going ops fell for the first time since 2009 and sales in China were sluggish. With Chinese consumers making up almost half of global luxury sales, it’s potentially worrying – although not as much as it might be (more of that later).

Not that a confident LVMH let all that dim its outlook for 2015 with its forecast for this year’s result staying positive on the back of improved US and European businesses that offset those China woes. Star brand Louis Vuitton also saw a renaissance under designer Nicolas Ghesquière helping boost sales growth for the flagship brand.

Even more goods news came as the luxury goods giant reported a major profits boost, albeit completely underpinned by funds from the sale of its stake in rival Hermès.

So let’s get down to detail: Overall, business is improving, the company said as Q4 sales grew 10% to €9.2bn. The US market gained pace and European sales improved late in the period.

Given that a recent report showed Chinese consumers are preferring to spend their money in luxury locations abroad, are travelling more widely and both the dollar and the euro have been weak, maybe those sluggish sales in China weren’t quite such bad news after all because we know that luxury sales in key capital cities are virtually underpinned by tourist spending.

Back with those details, on a comparable basis, sales grew 5% in the final quarter, beating analysts’ expectations for a 2-3% gain.

Profits overall last year jumped 64% to €5.65bn (boosted by the Hermès-linked gain) but profits from on-going operations actually dipped 5%, the first annual decline since 2009. 2014 revenues increased 6% to a record €30.6bn ($35.1bn).

LVMH chief Bernard Arnault said he is “relatively confident” for 2015, despite a climate of economic, currency and geopolitical uncertainties. The man who could almost be credited with having invented the modern luxury market back in the 1990s is certainly one we have to listen to.

He appears to be playing a waiting game as he has done many times in the last few decades. “Our main objective is to create desirability,” he said, adding that higher profits would follow once that was achieved.

Digging deeper, LVMH’s fashion and leather goods division saw sales rise a better-than-expected 10% last year to €10.8bn boosted by the addition of Italian brand Loro Piana acquired at the end of 2013. Stripping out the Loro Piana sales and the effects of exchange rates, sales in the division rose 3%.

The division’s Q4 sales rose 4%, up from an anaemic 2% hike in Q3, helped by strong demand for new limited edition Louis Vuitton handbags. Analysts were please as they had expected the division, which contributes more than half of the group’s operating profits, to remain flat.

Arnault said Céline and Givenchy continued to be successful while Louis Vuitton’s profitability remained at “exceptional levels” in Q4, he added without providing details.

He also said the company will continue its plan to reposition the Marc Jacobs brand with an eye to eventually spinning it off through an IPO. But no timeline was given.

Selective retailing (that’s travel retail specialist DFS and beauty chain Sephora) posted the fastest growth at 7% thanks to an “exceptional year” for Sephora.

However, watches and jewellery fell below expectations. Tag Heuer’s reorganisation and restructuring cast a shadow over the unit, despite jeweller Bulgari seeing an increase in operating profitability. Profits from LVMH’s watch and jewellery recurring operations fell a massive 23% last year.


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