Louis Vuitton

PARIS — The pundits have been predicting strong results from the top performers in luxury fashion and Louis Vuitton did not disappoint, breezing past the 10 billion mark for annual sales and topping expectations for growth into the end of last year — a tumultuous time for many companies.

As analysts emerge from a flurry of number crunching, evidence points to new levels of productivity and profitability from the star label of LVMH Moët Hennessy Louis Vuitton, reinforcing its dominant position. A higher concentration of sales in store spaces is proving key.

Louis Vuitton’s sales density likely reached an all-time high of 57,000 euros a square meter at the end of last year, beating rivals Hermès and Gucci, according to analysts at RBC Capital Markets. RBC pegs the figure of runner-up Hermès, which reports full-year sales today, at 52,000 euros a square meter. Gucci, meanwhile, has a long-term target of 45,000 euros a square meter, and parent company Kering is expected to offer insight on this figure when it reports full-year earnings on Feb. 12.

“The reality is that these three mega-brands continue to increase their advantage [versus] the rest of the pack on this key metric,” noted RBC analysts in a research note Thursday.

Luca Solca, an analyst with Sanford C. Bernstein, estimates Louis Vuitton’s operating profit margins as “north of 40 percent, possibly in the mid-40s.” The company, which does not provide a breakdown of operating profit by brand, declined to comment.

Operating profit from recurring operations rose 21 percent for LVMH’s entire fashion and leather goods division, home to Louis Vuitton, to reach 5.94 billion euros in 2018.

RBC estimates that Vuitton accounts for 80 percent of the division, which would put its operating profits at about 4.7 billion euros. One source said the figure is closer to 5 billion euros, suggesting an acceleration of profitability.

High space productivity, or high sales per square meter, as well as scale are central to reaching such levels of profitability, allowing the company to efficiently absorb the fixed costs of stores and headquarters, added Solca, referring to the Louis Vuitton brand.

“Being the ‘king of the jungle’ also allows you to have an efficient cost position when it comes to media and rental costs — as you have more bargaining power, on top of [having] higher scale,” Solca said.

LVMH kicked off earnings season by tempering mounting anxiety over Chinese appetite for high-end goods as trade tensions flare up, recording 17 percent organic sales growth from its fashion and leather goods division over the fourth quarter.

It was an exceptional year for Louis Vuitton, noted LVMH chairman and chief executive officer Bernard Arnault. Sales at the brand “largely” surpassed the 10 billion euro mark, he said, maintaining that his luxury conglomerate is after brand appeal rather than setting financial objectives.

“This is not at all an objective, because the objective, in our business, is quality, appeal. This is the objective we have set at Vuitton…it’s not revenues — revenues are a consequence,” he said.

“We try to be always the most desired brand in the world. For example, at Vuitton we never do sales, we never do outlets,” he said, noting the work of designers Nicolas Ghesquière for women’s and Virgil Abloh for men’s.

Under ceo Michael Burke and his second-in-command Delphine Arnault, Bernard Arnault’s daughter, Vuitton has embarked on an upscaling drive in recent years, widening assortments of higher-priced leather handbags like Capucines, saying a focus on quality rather than quantity would secure its market position.

Vuitton initiated the strategy in 2013, noting the switch in emphasis from monogram canvas to more expensive leather goods would be a gradual process.

During the results presentation, Arnault also noted Vuitton focuses on stores that are adapted to different regions and seek to project diversity. He mentioned three new stores as examples — in Sydney, which he described as “quite original,” Osaka in Japan, and on Bond Street in London.

It takes time to build workshops, the luxury titan explained, and the company has hired a number of artisans for four new production sites to be built this year.

“You have to train people, it takes time, it’s not something that can be done from one day to the next. This is why, when you want to obtain the best quality, you have to hold back on growth with an eye to quality,” he said.

“We are constrained by production capacity, which does not allow us to go faster — there’s no point in going faster, it’s better to work on new products and new ideas,” Arnault said.

He described the type of growth the company seeks as “controlled and selective growth which targets appeal.”

“Even if we have designers that create a lot of buzz, on social networks, what we’re after is quality and longevity, the timelessness of our products, and this fairly unique mix at Vuitton between modernity and the history of the house, travel and a contemporary nature,” he said.

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