By Evan Clark
with contributions from Jean E. Palmieri
 on April 11, 2017
Marc Jacobs RTW fall 2017

Analysts are turning their attention toward the Marc Jacobs turnaround efforts as the broader business at LVMH Moët Hennessy Louis Vuitton clicks along with solid first-quarter sales growth, despite worries about an overly “exuberant” luxury market.

On a conference call to go over the company’s 15 percent top line gain in the first quarter of this year, HSBC analyst Erwan Rambourg noted that “there’s very little not doing too well” outside of the Marc Jacobs business and asked if the company had “a plan B if the repositioning doesn’t bear fruit.”

Chief financial officer Jean-Jacques Guiony stood firm in his support and told Rambourg it’s “probably one of the few negative performances we have in the group.”

“The company, in my view, is making a big improvement in its product,” Guiony said. “What they do, what they have been doing over the last season or two seasons is much better than before, particularly on the handbag business. Obviously, this takes a little bit of time to pay off, but we are extremely confident and in the meantime, we have to reduce the cost base. There is no plan B. There is no plan C. And it will take the time it takes to fix this business, which we think is a very promising business [that] has proven quite complicated to develop, but we are great believers of the future of Marc Jacobs.”

Exane BNP Paribas’ Luca Solca followed up on that, noting that the read on the Marc Jacobs outlook seemed “more positive,” but Guiony made clear there’s plenty more to do and that LVMH is committed to helping the brand hit its potential.

“I’m not positive about the outlook,” Guiony said. “I’m positive about the brand and the teams. That’s all. We are very confident that we will make it. We have always been confident, how long it takes, and what it costs is another question, which unfortunately I don’t want to share in a public way. I mean, we’re working very hard to make this brand up to its potential and we are really working on it.”

Marc Jacobs’ repositioning has led to the demise of the label’s men’s collection. 

“In connection with the transition of our brand to focus on the core women’s business, we have concluded our license agreement with Staff International SpA for our small men’s business, following the fall 2017 line,” the brand said Tuesday. “We are grateful to Staff International for their work over the past eight years, and thank them for their commitment.” The license covered ready-to-wear, bags, accessories and footwear.

While men’s is on the back burner for the time being, the company may integrate some select men’s pieces into the line in the future, but not immediately.  

Marc Jacobs stepped down from the creative helm of Louis Vuitton in 2013 to focus with on his namesake brand, with an eye toward an eventual IPO. That was just two years after Michael Kors Holdings went public with great fanfare, reminding investors of all stripes about the riches to be had by floating a fashion company, when things go right. The market has since changed, though, with stocks at a high and investors more reticent to get behind apparel brands, particularly as consumer habits change and e-commerce grabs a bigger share of the market — and investor bandwidth.

Analysts were keen to talk about LVMH’s digital game plan.

Guiony said LVMH has been thinking about how to expand, including through a digital push under the auspices of the firm’s luxury department store, Le Bon Marché, but that plans were not set.

Asked about how much of Louis Vuitton and Sephora’s sales came through the web, Guiony said: “I will give you the answer when the competition gives the answer. I understand that everybody is talking about online, but I don’t see many numbers. So, I have them, but for the time being, we shall keep them for ourselves.”

He did note that digital sales are more profitable than brick-and-mortar sales — once a certain critical mass has been reached.

“So it depends very much on the degree of maturity of the online business of a given brand,” Guiony said, noting Sephora in the U.S. had reached that threshold.

Despite the general strength at the luxury giant, Guiony told analysts on a conference call that the company was “not in the mood” to release additional funds for capital expenditures or operating expenditures for the second half of the year, noting the first-quarter’s growth rate “should not be extrapolated for the rest of the year.”

“Our visibility is not particularly good,” the cfo said. “This current environment, which is quite exuberant, calls for cautions.”

He pointed to prior statements from chairman and chief executive officer Bernard Arnault, who has warned investors that he was “extremely cautious for 2017.”

Separately, Christian Dior Couture — which like LVMH is part of the Christian Dior group — posted first-quarter revenues of 506 million euros, or $539 million at average exchange rates, up 18 percent versus the same period a year ago. At constant exchange rates, sales rose 17 percent, compared with 12 percent in the previous quarter.

Retail sales revenue rose 19 percent at actual exchange rates and 18 percent at constant exchange rates, boosted by the positive reception for Maria Grazia Chiuri’s first rtw and accessories collections for the house, it reported.

The company’s last financial year exceptionally ran from July 1 to Dec. 31, 2016, and it moved back to reporting in line with the calendar year in 2017.

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