PARIS — Marc Jacobs is safe, for now.
LVMH Moët Hennessy Louis Vuitton on Tuesday dismissed speculation that it was considering a sale of the U.S. brand, in the wake of its decision to unload Donna Karan International to G-III Apparel Group for $650 million.
Still, losses at both houses weighed on the results of its fashion and leather goods division in the first six months of the year, according to LVMH, which disclosed results after the close of trading on the Paris Bourse.
Sales at the linchpin division — where flagship brand Louis Vuitton contributes an estimated 50 percent of group profits — fell 1.3 percent to 2.92 billion euros, or $3.3 billion, in the three months ended June 30. Sales were up 1 percent in organic terms.
Thomas Chauvet, luxury goods analyst at Citi, had speculated that the DKI transaction on Monday — LVMH’s first significant disposal in more than a decade — could open the door to other sales in the division, such as Marc Jacobs, which like Donna Karan is in the midst of a restructuring.
But LVMH chief financial officer Jean-Jacques Guiony categorically denied Marc Jacobs was on the block.
“It is not for sale. It is an idea that never crossed our mind. We believe in the positioning of Marc Jacobs. Obviously, it doesn’t come easily, but we believe in the long-term value of the brand and we’ll stick to it and we’ll develop it and we’ll make it a success,” he said during a conference call.
“It will take some time, but we are extremely convinced that we could create value out of Marc Jacobs. And it’s not because we have decided to sell Donna Karan that all of a sudden we’ll look at all of our brands and make them a candidate for disposal,” he added.
Marc Jacobs has yet to register any improvement a year after deciding to assimilate the contemporary Marc by Marc Jacobs label into the signature Marc Jacobs collection, as part of an ambitious plan to grow the company in anticipation of a possible initial public offering.
Guiony said Berluti was another drag on the group’s performance in the first half, though its losses are shrinking.
Louis Vuitton was among the star performers of the division, with LVMH singling out the brand’s presentation of its cruise collection by Nicolas Ghesquière in Rio de Janeiro in May as a first-half highlight.
“No other brand is more exposed to the impact of travel retail shifts than Louis Vuitton, and the resilience of its financial performance is the best proof of the soundness of its product and distribution strategy,” said Guiony, noting that Vuitton’s profitability was virtually on par with the same period last year.
“As far as the product architecture is concerned, we are extremely pleased with the development of Vuitton over the last, I would say, three to four years, and have reinforced in a great way the value content at the various price segments,” he added.
In addition, Fendi — which is celebrating its 90th anniversary — posted an “excellent” performance in the first half, while Céline and Kenzo recorded “strong” growth, LVMH said.
Profit from recurring operations in the fashion and leather goods division fell 2 percent during the period, a performance that Guiony qualified as fairly positive.
“We managed, despite some repositioning situations like Donna Karan and Marc Jacobs, to contain our cost base so that we could protect margins,” he noted.
Group sales rose 2.2 percent in the second quarter to 8.57 billion euros, or $9.67 billion, above the FactSet estimate of 8.44 billion euros, or $9.53 billion.
In organic terms, the gain stood at 4 percent, compared with a rise of 3.6 percent in the first quarter of the year and an increase of 9 percent in the second quarter of 2015.
Dollar figures are converted from euros at average exchange rates for the period.
“The conference call was reassuring and this resilient 1H performance should drive the shares up tomorrow, especially considering market fears of a potential miss given LV’s above-average exposure to France and following several weak Q2 figures/warnings from its peers,” said Rogerio Fujimori, luxury analyst at RBC Capital Markets.
In the first half of the year, profit from continuing operations was flat at 2.95 billion euros, or $3.3 billion. Net profit increased 8 percent to 1.71 billion euros, or $7.12 billion, LVMH said.
“LVMH’s results for the first half of 2016 reflect, more than ever, the strength of our business model, which allows us to continue to grow even during an unstable geopolitical environment and economic and monetary uncertainties,” stated Bernard Arnault, chairman and chief executive officer.
He gave no specific guidance for the second half, other than to increase the group’s global leadership position in luxury goods.
Sales in the second quarter were propelled by the robust performance of wines and spirits, up 13 percent in organic terms because of strong sales of Champagne in Europe and the United States. Hennessy cognac posted solid growth in the U.S. and improved momentum in China, after a period of heavy destocking.
Selective retailing saw revenues rise 7 percent, largely because of Sephora, which continued to gain market share in all regions even as DFS faced ongoing challenges in Asia, in particular Hong Kong and Macau. Perfumes and cosmetics were up 6 percent, thanks to momentum at Parfums Christian Dior.
Sales of watches and jewelry rose 2 percent in organic terms, with Tag Heuer recording the first positive effects of its ongoing restructuring.
“We still have some businesses to fix, but it’s highly encouraging that some of them have now been turned around,” said Guiony.
Overall, the group saw strong momentum in the United States, with organic growth up 7 percent in the second quarter, a slight improvement on the first three months of the year. Growth in Europe slowed to 3 percent from 7 percent, as France suffered a drop in tourism in the wake of a series of terrorist attacks.
Japan posted a 5 percent drop in organic revenue growth, following a 6 percent increase in the first quarter, while Asia excluding Japan saw revenues increase 3 percent, compared with a 2 percent drop in the first quarter.
“The global environment is quite challenging. It’s particularly true in terms of currencies, where the traditional answer of adjusting prices to fluctuations in currencies is not valid anymore. It doesn’t mean that we have no pricing power, it means that we should take a long-term view on reflecting currency fluctuations in prices,” noted Guiony.
The executive said Louis Vuitton had not implemented any price increases in major countries during the first half and was still mulling an adjustment in the United Kingdom following the pound’s sharp drop in the wake of Britain’s vote to leave the European Union.
The brand is set to release a collection of fragrances in September, but Guiony cautioned its impact would not be comparable to a launch by Chanel or Dior, since the scents will be sold only in 350 to 400 Louis Vuitton stores worldwide.
“It’s quite difficult at this point in time to calibrate our ambitions. We think we have a strong product that could be not only a good expression of the brand, but a fairly accessible price point to the brand, so we are quite optimistic about the future of it,” he said.
Asked if the fragrances could eventually be distributed at Sephora, Guiony was skeptical. “The concept of Vuitton distributing 100 percent of its products and not leaving any third party, even as strong and as knowledgeable as Sephora, doing it for them, is a dogma as much as a concept, so I don’t think it is likely in the next 150 years that they will do it,” he said.
LVMH plans to pay shareholders an interim dividend of 1.40 euros, or $1.54 at current exchange, on Dec. 1. Guiony said it would decide whether to buy back shares in the second half, once it has a better idea of its net debt position at the end of the year.
The LVMH results come after Hermès International last week reported a 6.2 percent rise in second-quarter revenues. Burberry said earlier this month that retail sales in its fiscal first quarter, ended June 30, were flat on an underlying basis and 4 percent higher than the corresponding three-month period last year.
Kering is scheduled to publish its quarterly revenues on July 28.