WWD.com/business-news/business-features/bernard-arnault-vows-to-keep-lvmhs-upmarket-drive-7637984/
government-trade
government-trade

Bernard Arnault Vows to Keep LVMH’s Upmarket Drive

As if the world didn’t already know it, Bernard Arnault is all about luxury — and he’s sticking to it.

Louis Vuitton helped the group’s fashion and leather goods division climb 11 percent in the quarter.

PARIS — As if the world didn’t already know it, Bernard Arnault is all about luxury — and he’s sticking to it.

This story first appeared in the April 11, 2014 issue of WWD.  Subscribe Today.

Speaking at LVMH Moët Hennessy Louis Vuitton’s annual general meeting here Thursday, the luxury titan said the group remains committed to its strategy to move upmarket.

“Affordable luxury — these are two words that don’t go together,” the LVMH chairman and chief executive officer said, pointing to the U.S., which is “rebounding on its old dynamics and has a lot of potential for the years to come,” as well as new emerging countries such as Malaysia and Indonesia, as prime players.

He said the group was working on reeducating its artisans towards more upscale products and added: “Rather than opening new stores, we are concentrating on ameliorating and enlarging existing ones, such as our Louis Vuitton flagship on Avenue Montaigne due to re-open at the end of the year.”

An exception is Sephora, part of the group’s selective retailing division, which continues “to grow strongly in all regions.” The group told shareholders that 150 new Sephora doors were planned for 2014, surpassing 2,000 units worldwide, with Indonesia and Malaysia as new entries. Plans to expand Sephora online are also in the works.

LVMH’s strategy was cheered by the stock market, which sent the group’s shares up 3.22 percent Thursday to 140.85 euros, or $180.52 at current exchange, on the Paris Bourse. In contrast, shares of Kering, LVMH’s main competitor, were down 0.2 percent at 149.65 euros, or $191.80.

Arnault’s comments came a day after LVMH reported a 4 percent increase in total sales to 7.2 billion euros, or $9.9 billion, in the quarter ending March 31, carried mostly by its flagship Louis Vuitton, which helped the group’s fashion and leather goods division climb 11 percent to 2.6 billion euros, or $3.6 billion.

“All brands delivered a good performance with the exception of cognac,” enthused chief financial officer Jean-Jacques Guiony during a conference call with analysts on Thursday, discussing the group’s first quarter in more detail.

Dollar figures are converted from euros at average exchange rates for the periods to which they refer.

During a question-and-answer session, analysts peppered LVMH executives over the secret of Louis Vuitton’s success.

“In part it is due to the consumer tax increase in Japan as of April 1,” Guiony conceded, which sparked a shopping bonanza in the region, but the cfo noted that Japan’s 32 percent spike in growth in the first quarter referred to all of the group’s businesses and brands, not just Vuitton.

“Louis Vuitton had an excellent start to the year,” he said, pointing out the brand’s new artistic director, Nicolas Ghesquière, as well as the strong performance of a range of new looks from the monogram line, such as the Montaigne, the Métis and Pallas, as most-positive factors.

The quarter was further marked by the opening of a new Fendi flagship in Munich and a Céline boutique in London, with the group vowing to expand the latter’s retail network. “[It] is smaller than the brand would deserve,” said Guiony, noting that in addition to its handbag business, “ready-to-wear and shoes could be strong contributors in the future.

“Although ready-to-wear makes up only 15 to 30 percent of the total business, it’s very important in terms of image and as a generator of traffic,” he said.

Separately, newly consolidated Loro Piana, the cashmere specialist, which the group acquired last year, delivered a “remarkable performance.”

Selective retailing — which includes Sephora — edged up 5 percent to 2.2 billion euros, or $3 billion, buoyed by “the ongoing development of tourism in Asia,” said Guiony, most notably Macau and Hong Kong, which benefited DFS.

During the same period, the watches and jewelry division remained flat at 607 million euros, or $831.71 million, while perfumes and cosmetics were up 1 percent to 941 million euros, or $1.29 billion, supported by continued strong sales of Christian Dior’s iconic perfumes, most notably J’adore, as well as by the rollout of Guerlain’s skin-care range Abeille Royale in Asia.

Geographically speaking, the U.S. market grew 5 percent, while Asia was up 4 percent, negatively impacted by the wines and spirits business. The division overall declined 8 percent to 888 million euros, or $1.2 billion, due to the slow destocking of cognac by retailers in China, the company reported.

“Without it, we would have had a double-digit growth,” said Guiony, warning that although there would be “less destocking this year,” second-quarter results were still expected to come “under pressure.”

In contrast, wines and spirits experienced a strong acceleration in the U.S., where cognac sales grew 10 percent in value, mostly due to home consumption.

Europe remained largely flat, with 1 percent growth in the first quarter, but Guiony noted: “Being slightly positive in the current environment is not bad.”

Analysts meanwhile wondered whether Louis Vuitton would be able to keep up its “creative momentum.”

Vuitton is clearly the “key profit center in the group,” noted Citigroup’s Thomas Chauvet. “However, the product is overtly branded and the group would be vulnerable to changes in consumer taste in this area.”

He also pointed out that LVMH was highly dependent on sales to tourists, which makes the group “vulnerable to geopolitical developments.”

Guiony acknowledged that Russian tourists indeed travelled less in the first three months of the year, but the Chinese continued to travel. In general, he said, “global tourism trends should play in our favor.”

Helen Norris from Barclays observed that “Chinese spending [was] up double digits in Q1 globally after midsingle-digit growth in 2013 with the new monogram line proving successful.”

She told WWD she expected “a slowdown in Q2 as the surge in Japan reverses post the excise increase. However, the underlying improvement of 1.5 percentage points from the Chinese consumer is encouraging.”

Meanwhile, the Christian Dior group, parent of LVMH, also reported a strong first quarter ending March 31, carried by “exceptional growth of Christian Dior couture.”

The group said Thursday that sales jumped 5 percent at actual exchange rates to 7.6 billion euros, or $10.4 billion, compared to the year-ago period.

Christian Dior couture was up 13 percent to 357 million euros, or $489 million.