Louis Vuitton Cruise 2018 Show in Kyoto, Japan

PARIS — LVMH Moët Hennessy Louis Vuitton powered ahead in the second quarter thanks to “outstanding momentum” at its cash-cow Louis Vuitton brand, but reiterated its cautious outlook for the second half as it starts to face tougher comparatives, particularly in Asia.

The parent of brands including Fendi, Sephora, Bulgari and Hennessy said revenues, including for the first-time German luggage maker Rimowa, rose 15 percent year-over-year to 9.83 billion euros in the three months to June 30.

Organic growth was 12 percent, above a market consensus forecast of 10 percent growth. The group said it benefited from a favorable comparison base in Asia as well as France, where activity last year was affected by the impact of terrorist attacks, adding that current trends could not be extrapolated for the full year.

“In an environment that remains uncertain, we approach the second half of the year with caution,” Bernard Arnault, chairman and chief executive officer of LVMH, said in a statement published after market close on Wednesday.

The group said that despite the unpredictable context, it would continue to pursue gains in market share through its product launches, which include the release of the Fenty Beauty by Rihanna makeup line this fall, and its geographic expansion in promising markets, combined with efforts to manage costs.

“All in all, these strong first-half numbers confirm LVMH (and flagship LV brand in particular) as a market share winner in a sector where brand performance remains quite polarized,” Rogerio Fujimori, analyst at RBC Capital Markets, said in a research note.

Jean-Jacques Guiony, chief financial officer of LVMH, said spending by Chinese customers at home and overseas remained “extremely solid” in the second quarter, despite a slight decrease versus the first three months, while local business was robust in Japan and traffic increased in Hong Kong.

Nonetheless, any slowdown in the second half was likely to be felt more sharply in Asia, he said on a conference call.

“Some geographies like Asia and China saw a marked improvement from July onward last year,” said Guiony. “For some brands, the top-line growth gap between H1 and H2 last year is as high as 10 percent, which obviously creates a strong challenge for the months ahead.”

Net profit in the first half jumped 24 percent to 2.12 billion euros, while profit from recurring operations rose 23 percent to 3.65 billion euros. Operating margin reached 18.5 percent, an increase of 1 percentage point, with the margin in the fashion and leather goods division gaining 400 basis points.

Nonetheless, Guiony warned that currency fluctuations could impact profitability.

“One can only be surprised by the sharp fall in the U.S dollar that took place in the last couple of weeks, which is a useful reminder that we may not be in a strong-dollar environment forever,” the executive said. “We all know that a stronger euro has a negative impact on margins.”

The call provided the first feedback on the launch in June of LVMH’s e-commerce platform 24 Sèvres, which carries more than 150 luxury women’s wear brands including Vuitton, Christian Dior, Chloé and Valentino.

“The initial response has been encouraging, while the journey will be long,” said Chris Hollis, head of financial communications at LVMH. Guiony said the site offered a “unique proposition” since it marked the first time that major LVMH brands were widely available on a multibrand web retailer.

“When it comes to brands outside the LVMH group, we’ve been positively surprised by the answers we got from most players,” he said. “This concept, to be up-and-running and to be efficient and to offer a seamless superior client experience, it takes time, but we think we are [going] in the right direction.”

Last week Vuitton launched its e-commerce site in China in the hopes of capturing the business of the digitally savvy local clientele. “Obviously, digital is at the core of our thinking. We think the market is evolving fast,” said Guiony, adding that Vuitton and Sephora were at the vanguard of the trend within LVMH.

“It’s not necessarily a revolution or a big change for us, but it’s pretty clear that progressively, some of our customers want to engage with our brands — be it on the marketing side or purely on the commercial side, the trading side — in a digital way with us, and we have to get ready for that,” he added.

Sales in the group’s key fashion and leather goods division sustained their strong momentum in the second quarter, advancing 13 percent in organic terms to 3.49 billion euros. This compared with 15 percent organic revenue growth in the first quarter of this year and with a 1 percent increase in the second quarter of 2016.

Profit from recurring operations in the division jumped 34 percent in the first half, with margins improving at Vuitton, where highlights included Nicolas Ghesquière’s cruise 2018 collection, shown near Kyoto in Japan, and the launch of collaborations with artist Jeff Koons and New York streetwear brand Supreme.

Fendi recorded sustained growth in all product categories, with the launch of the Kan I handbag model, and still has scope to grow its store network, Guiony said. Céline, Loewe and Kenzo experienced good growth.

“With regards to demand for handbags being globally much stronger, I will just remind you that the market seems to be quite discerning and there are brands, not only within LVMH, that are doing extremely well, but some other brands are not doing that well,” said Guiony.

“The market in my view is mostly a function of the quality of product innovation today, and it’s no surprise that the brands having done the best job within our group — mostly Fendi and Vuitton — are getting the highest growth.”

Berluti was still losing money but seeing a rapid improvement in top-line growth, according to Guiony. “It’s a question of time before we break even but the trajectory is pretty strong and we are not particularly worried. We should improve markedly this year and in the following year as well,” he said.

Marc Jacobs, meanwhile, saw the first results of its ongoing restructuring, with an improvement in like-for-like business in its own stores, though its wholesale business continued to decline amid a morose outlook for U.S. department stores.

“The situation remains quite difficult but at the very least, we see the first signs of the improvement in our product offer in the real business, which is obviously very encouraging and telling us that we are moving in the right direction,” Guiony said.

LVMH’s 6-billion-euro acquisition of Christian Dior Couture will be consolidated in the second half, but Guiony said it should not result in a big margin uplift. He also expected limited benefits from having Dior’s ready-to-wear, accessories and jewelry under the same roof as its perfumes and cosmetics.

“Obviously, we are not very keen [in general] on synergies, heavy integration of business. This being said, if there are intelligent things to be done, we will do it,” he said.

Reporting its quarterly results separately for the last time, Christian Dior Couture said revenues totaled 541 million euros in the second quarter. Sales rose 17 percent in the first half, while profit from recurring operations jumped 58 percent to 117 million euros.

LVMH said its watches and jewelry division recorded organic revenue growth of 14 percent in the second quarter, while perfumes and cosmetics posted 13 percent growth. Selective retailing was up 12 percent, and the wines and spirits business group reported revenue growth of 6 percent.

Although the luxury conglomerate posted record annual results in 2016, Arnault has warned repeatedly since then that the luxury sector could be headed for its biggest correction since the 2008 collapse of Lehman Brothers.

Among the risk factors, he cited record-low interest rates; “irrationally exuberant” stock markets, borrowing a phrase coined by former Federal Reserve Board chairman Alan Greenspan; geopolitical uncertainty, with potential conflicts brewing in the areas of trade, customs and currencies, and continued low economic growth in Europe.

Shares in LVMH closed down 0.4 percent at 218 euros on the Paris Stock Exchange on Wednesday before the results were released. The positive figures bolster the case for a recovery in the luxury sector.

“We continue to favor soft luxury conglomerates and reiterate our buy rating on LVMH, seeing it as a well-balanced group and less cyclical than commonly perceived,” Thomas Chauvet, head of luxury goods equity research at Citi, said in a research note.

Earlier this month, Burberry reported retail revenue rose 13 percent in the three months to June 30, up 3 percent at constant exchange rates, while Hermès International said sales rose 8 percent at constant exchange rates during the period. Kering is scheduled to publish second-quarter results on Thursday.

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