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  • Joelle Diderich

How Louis Vuitton and Dior Are Crushing the Competition

LVMH Moët Hennessy Louis Vuitton's fourth-quarter results confirmed that its star brands are thriving, despite the coronavirus pandemic.

PARIS What makes Louis Vuitton and Dior run?

That’s what analysts were wondering after LVMH Moët Hennessy Louis Vuitton posted better-than-expected results in the fourth quarter, fueled by the strong performance of its key fashion and leather goods division.

The segment saw revenues jump 18 percent on a like-for-like basis in the three months ended Dec. 31, in stark contrast to sales declines in all other divisions, and it accounted for a whopping 86.5 percent of LVMH’s profit from recurring operations in 2020 as a whole.

The group’s two cash cow brands have posted double-digit organic revenue growth in each of the last two quarters, and profitability at Vuitton remains “exceptional,” the luxury conglomerate reported on Tuesday. LVMH does not break out results for individual brands.

“These numbers reported by LVMH are hugely impressive against a backdrop of an increasingly challenging operation environment,” said Fflur Roberts, head of global luxury goods at market research firm Euromonitor International.

She pointed out that global sales of personal luxury goods declined by 21 percent in 2020, according to Euromonitor’s latest estimates, published in November. So why are LVMH’s fashion brands thriving, even as the coronavirus pandemic continues to shut down global travel and force thousands of stores to close?

The answer is a combination of product, marketing and distribution, according to Jean-Jacques Guiony, chief financial officer of LVMH. The brands started the year with a strong pipeline of new products, such as the Pont 9 handbag at Vuitton, and the Bobby at Dior.

While the majority of other luxury labels suspended fashion shows and other physical events worldwide, Dior livestreamed its cruise show from Lecce, Italy, while Vuitton took its spring 2021 men’s show on the road, with runway displays in Shanghai and Tokyo.

In addition, Dior brought its “Christian Dior: Designer of Dreams” exhibition to Shanghai in July, marking the first large-scale fashion event in China since the beginning of the year.

“It was really Dior and Vuitton taking the bulk of the customer’s attention, because nobody else was talking. We did it in the relevant geographies, in Asia, basically, and this is thanks to the fact that we have very, very strong local teams that were able to do it themselves,” Guiony said on a conference call.

Meanwhile, LVMH’s online sales grew fast, though how fast, he would not disclose. E-commerce accounted for 9 percent of revenues in 2019, but Guiony declined to give the figure for 2020, saying the level was unsustainable and would skew expectations going forward.

“There is nothing wrong with shopping online, but we would like a better balance than the one we had, particularly in April and in May 2020,” he said.

While the group has been diligent about slashing costs, it is hanging onto its flagships in the world’s most desirable locations — even in Europe, where tourism has shriveled and sales were down 25 percent last year. The region accounts for almost a quarter of LVMH’s global revenues, and the group is banking that local customers can help make up lost sales.

“Obviously, this will not be achieved in a year, or even in two, but we think it is achievable to develop locals in a significant way to offset, at least in the short term, part of the lost business with tourists,” said Guiony.

“The tourist business may not come back at its preceding levels, but it will come back. So as far as we are concerned, we see no particular reason why we should be shutting down stores, particularly in Europe,” he added.

Profit from recurring operations at the fashion and leather goods division was down just 2 percent in 2020 to 7.2 billion euros, “an astounding achievement,” Bernstein analyst Luca Solca said in a research note.

While the market tends to focus on LVMH’s marquee brands, Guiony noted there were other strong performers in its stable of 75 houses. For instance, Fendi weathered the COVID-19 crisis much better than it did the last global economic crisis in 2009, while Marc Jacobs succeeded in posting a profit in 2020 after five years of losses.

“Loewe did very well. Celine had a very difficult first half, but the second half was very strong,” Guiony reported.

“There were some achievements there that make us quite hopeful that the portfolio has very strong assets. And it’s probably not in the midst of the crisis that you have to judge who are the winners and losers. We certainly know the winners, but there could be other ones that we hope to develop in coming years,” he added.

To be sure, the division that suffered the most last year was selective retailing, which includes Sephora and DFS, LVMH’s travel-retail business. It posted a loss of 203 million euros in 2020, versus a profit of 1.4 billion euros the year before. A return to break-even will hinge on the revival of tourism.

“They were really hammered by negative operating leverage in 2020, with a big drop in their customer base, but this goes both ways: The minute customers come back, the profitability will come back to where it was previously,” Guiony predicted.

He commended Sephora for successfully navigating a year that saw profits from LVMH’s perfumes and cosmetics division plummet 88 percent. “We turned a profit for Sephora for the full year, which was not obvious, frankly, at the beginning of the year, and I think the Sephora teams reacted extremely well,” the executive said.

After posting several consecutive years of record results, LVMH saw net profit fall 34 percent in 2020 to 4.7 billion euros, while its profit from recurring operations was down 28 percent to 8.3 billion euros, more than 1 billion euros above consensus expectations.

Sales were down 17 percent in 2020 to 44.6 billion euros, underscoring luxury’s relative resilience in the crisis.

“The revenue and profits achieved in this most challenging year demonstrate the outlook has certainly got better,” said Guiony, while the group stated that it was entering 2021 with “cautious confidence.”

Group sales were down 3 percent in organic terms in the fourth quarter, versus a fall of 7 percent in the third quarter, and a rise of 8 percent during the same period last year, just before the coronavirus crisis hit.

Sales of wines and spirits fell 11 percent, perfumes and cosmetics were down 15 percent, and watches and jewelry lost a comparatively modest 2 percent. Selective retailing saw revenues dive 26 percent as international travel showed no signs of recovery.

LVMH canceled its traditional annual results press conference, as large gatherings remain banned in France, which is struggling to contain the spread of COVID-19. It opted for a webcast instead, although LVMH chairman and chief executive officer Bernard Arnault did not take part in the virtual event, depriving analysts and reporters of his trademark pithy comments.

The most important news, as far as shareholders are concerned, is that the group plans to pay a dividend of 6 euros per share for 2020, up from 4.8 euros the prior year. If approved at the company’s annual general meeting on April 15, it will mark a return to the record level reached in 2018 — further proof that LVMH is going full steam ahead into 2021.

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