PARIS — Bernard Arnault is in no hurry to charge into the metaverse — his brands are doing just fine in the real world.
Speaking after his luxury conglomerate LVMH Moët Hennessy Louis Vuitton reported record full-year revenues and profits on Thursday evening, Arnault said while he was curious to explore the opportunities of the hotly hyped digital environment, he was also wary of a repeat of the dot-com bubble (LVMH was, after all, a major investor in the ill-fated Boo.com in the late ’90s).
“Let me start by saying that it’s a purely virtual world and until now, we are in the real world and we sell real products. To be sure, it’s compelling, it’s interesting, it can even be quite fun. We have to see what are the applications of this metaverse and these NFTs,” he said in a videoconference with analysts and reporters.
“If it’s well done, it can probably have a positive impact on brands’ activities. But we’re not interested in selling virtual sneakers for 10 euros,” the LVMH chairman and chief executive officer added.
“In conclusion, I would just say, beware of bubbles. I remember this from the early days of the internet, at the beginning of the 2000s,” Arnault continued, noting there are a multitude of companies building the metaverse. “There were a bunch of would-be Facebooks back then, and in the end, only one of them worked out. So let’s be cautious.”
The luxury magnate can afford to take his time. Revenues at LVMH totaled 64.2 billion euros in 2021, up 14 percent in organic terms versus 2019, with sales accelerating in the fourth quarter, fueled by its key fashion and leather goods division.
The group, which owns 75 brands including Louis Vuitton, Dior, Tiffany & Co. and Sephora, reported a net profit of 12 billion euros, up 68 percent compared to 2019, beating a FactSet consensus estimate of 10.9 billion euros.
Profit from recurring operations stood at 17.1 billion euros, up 49 percent versus 2019, considered a more reliable benchmark due to the disruptions caused by the coronavirus pandemic in 2020.
Group revenues in the three months to Dec. 31 totaled 20 billion euros, up 22 percent versus 2019. The FLG division posted organic growth of 51 percent during the period, marking a sharp acceleration versus previous quarters, boosted by marquee brands Louis Vuitton and Dior, a record year at Celine and Fendi, and a strong performance at Loewe and Loro Piana.
Wines and spirits were up 4 percent; perfumes and cosmetics edged up 1 percent; watches and jewelry jumped 18 percent, driven by a strong performance at Bulgari, and selective retailing was down 5 percent, as travel retail division DFS continued to suffer from a sharp slowdown in international travel.
Touting the “exceptional” performance of Vuitton and a “record” year at Tiffany, Arnault said the outlook for 2022 was positive, despite the shadow of inflation. “The numbers for the month of January indicate a growth rate similar to the end of last year, so it was a very good start to the year,” he said.
While he doesn’t expect tourism flows to return to normal before 2023 or 2024, Arnault noted the group’s performance in Europe perked up in the fourth quarter, as brands worked to develop their local clientele.
“I think that things will continue to improve, but we have an advantage over a lot of other companies and other groups, which is that we’re able to have a certain flexibility on prices. So, in the face of inflation, we have the means to react, and I think that demand for our products will continue to be strong,” he added.
He cited the example of a Patek Philippe Nautilus steel sport watch produced in collaboration with Tiffany, one of a limited edition of 170 with a retail price of around $50,000, that was sold at auction in December for a hammer price of $5.35 million, with proceeds going to an environmental nonprofit.
“When it comes to price, everything is relative. What matters most of all is the quality of the product,” said the executive.
Nonetheless, Arnault cautioned against excessive price increases, in what appeared to be a veiled dig at Chanel. That brand has raised the price of its handbags four times since the beginning of 2021, citing production costs, though the move has been interpreted as a strategy to align its price points with rival Hermès in order to burnish the exclusive aura of its products.
“We don’t want to give the impression, like some brands do, of heading toward prices that no longer match the economic reality of the price of the products. You have to be reasonable. We try to be reasonable so that our customers feel that they’re dealing with brands that offer them something realistic, and not something that is artificially inflated, even if the products are very beautiful,” he said.
Arnault credited LVMH’s exceptional performance to the desirability of its brands and its increasingly sophisticated products.
“We sell much more than fashion,” he argued, citing the example of the Louis Vuitton show in Paris last week unveiling the last collection designed by Virgil Abloh, artistic director of men’s collections, who died in November at the age of 41 from a rare form of cancer.
The display, devised by Abloh before his passing, featured a soundtrack composed by Tyler, the Creator, played by an orchestra conducted by Gustavo Dudamel, the music director of the Paris Opera, and choreography by Yoann Bourgeois.
“It was a performance, and that’s the spirit of Louis Vuitton. It’s much more than a fashion brand. It’s a cultural brand with a global audience,” Arnault said.
He paid tribute to Abloh, who last year was handed greater responsibilities at LVMH, in a deal under which the conglomerate gave him leeway to launch brands and seal partnerships across the full range of its activities.
“We are extremely sad. Nobody expected him to go this quickly. It’s a tragedy. He was an extraordinarily powerful creator. He was more than a fashion designer, he was a man of culture,” Arnault said. “We are still in mourning and I will talk about what comes next once this mourning period is over.”
In the meantime, the group is focused on the opening in early March of Dior’s renovated headquarters on Avenue Montaigne, said to include a restaurant, a museum and at least one suite. “I think it’s going to be an absolutely unforgettable event,” Arnault said.
And it will continue to invest in the turnaround of Tiffany, after completing its $15.8 billion purchase of the U.S. jeweler a year ago. LVMH has ramped up production of the T and HardWear lines; spruced up stores including the shop-in-shop in its Le Bon Marché department store in Paris, and launched a global advertising campaign featuring Beyoncé and Jay-Z.
“We made an excellent acquisition for the group,” he said, noting that sales at Tiffany grew strongly despite the loss of “several hundred million in revenues” due to the closure of its flagship in New York City, which is being completely remodeled and is set to reopen toward the end of the year.
Chief financial officer Jean-Jacques Guiony noted that with a free cash flow of 13.53 billion euros in 2021, up 119 percent versus 2019, LVMH had virtually offset the cost of the Tiffany purchase. LVMH plans to pay shareholders a dividend of 10 euros, up from 6 euros in 2020.
The strong results come after Compagnie Financière Richemont reported that revenues in the three months to Dec. 31 jumped 38 percent at constant currency rates versus the same period two years earlier. Kering is due to publish annual results on Feb. 17.