PARIS — Cognac is causing headaches for LVMH Moët Hennessy Louis Vuitton — because fewer Chinese are drinking it as part of a corruption crackdown.

This story first appeared in the October 16, 2014 issue of WWD. Subscribe Today.

LVMH chief financial officer Jean-Jacques Guiony said during a conference call on Wednesday that destocking of liquors, a principal drag on the French group’s third-quarter results, would likely continue through 2014.

Sharing finer details on results released Tuesday — a 5.7 percent gain in third-quarter sales to 7.39 billion euros, or $9.8 billion, as reported — LVMH said organic sales of wines and spirits sank 17 percent in organic terms.

Underlining how swiftly spending patterns can shift, the U.S. posted the strongest organic revenue in the third quarter, up 8 percent, with Japan gaining 5 percent, Europe 3 percent and Asia declining 3 percent. LVMH also trumpeted solid momentum in the Middle East.

Guiony touched on an array of woes denting demand for leather goods, watches and duty-free articles in Asia, including pro-democracy demonstrations in Hong Kong and a drop in travel flows to Hong Kong and Singapore. Korea, by contrast, is booming, an increasingly popular destination for Chinese tourists, he noted.

The fashion and leather goods division notched a 2 percent organic revenue gain in the quarter, reflecting improvements in Europe, the U.S. and Japan, with Asia edging lower. Louis Vuitton, the cash cow of the division, performed “a little bit lower than the others, but not far off,” Guiony noted, adding that margins were “stable.”

Perfumes and cosmetics, by contrast, “improved everywhere in the world,” Guiony said, pinpointing that Sephora posted like-for-like gains of 14 percent in the U.S., about 7 percent in China and north of 20 percent in the Middle East.

Asked if tourist traffic was behind the improvements in Europe, gripped with morose economic prospects, he said steady flows of Chinese tourists compensated for declines in visitors from South America, Japan and other Asian countries.

Guiony said LVMH would soon detail how it will distribute its 24.3 million shares in Hermès International, an operation that will leave it facing a tax bill of about 350 million euros, or $441 million at current exchange, for the capital gain it realized.

As reported, the two French companies, which have locked horns and traded barbs and lawsuits over LVMH’s creeping 23.1 percent stake in Hermès, reached a truce that will ultimately leave Groupe Arnault holding 8.5 percent.

Asked if LVMH might resume its acquisitive ways now that the dalliance with Hermès is over, Guiony said the group remains a “purely opportunistic” investor. “We have nothing in mind and we’re quite concentrated on organic growth,” he said.

In a research note, Citi analyst Thomas Chauvet noted that LVMH’s strong balance sheet “leaves room for tactical, opportunistic acquisitions, probably in skin care, hard luxury or niche fashion brands.”

Shares in LVMH eased 0.2 percent to close at 124.90 euros, or $158.44 at current exchange, on the Paris Bourse.

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