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Six Key Takeaways from LVMH’s 2019 Results

It was another year of record growth for the luxury conglomerate, which placed big bets on the experience economy and fine jewellery. But there are challenges ahead.
Celine | 图片来源:Shutterstock
By
  • Chantal Fernandez
BoF PROFESSIONAL

PARIS, France — LVMH Moët Hennessy Louis Vuitton SA delivered more record growth in 2019, a year that saw it extend its already considerable reach in hospitality, jewellery and fashion. But even the world's largest seller of luxury goods isn't immune from the economic and political turmoil gripping key markets.

Revenue for the group, which owns Louis Vuitton, Dior, Bulgari and numerous other luxury brands, reached €53.7 billion (about $59 billion), up 10 percent year-over-year, excluding the effect of foreign-exchange fluctuations. Profit from recurring operations reached €11.5 billion (about $12.7 billion), up 15 percent year-over-year. Sales in the fashion and leather goods category reached €22.2 billion (about $24.5 billion), up 17 percent year-over-year.

However, the fourth quarter was the company's weakest in 2019, with sales coming in at €15.27 billion ($16.8 billion) and up 8 percent in organic growth, just short of analysts' consensus forecast. In a research note, analysts with Piper Jaffray noted that sales in Hong Kong had plunged 40 percent in the quarter, as clashes between pro-democracy protestors and police shut down large swaths of the city (Louis Vuitton plans to close one of its Hong Kong stores.) A consumption tax increase in Japan also dampened sales in the quarter.

In a presentation with analysts, Chief Executive Bernard Arnault said 2020 is likely to bring further disruptions. He said predictions of a long-feared downturn in the global economy may be premature, but lean times will come eventually.

"We are not going to be able to escape a financial crisis at some point or another," he said. "Asset prices continue to rise — that can't last … there is bound to be a readjustment. … It won't happen this year."

Read on for more takeaways from LVMH’s results:

1. LVMH keeps the door open for deals. 

LVMH is still wrapping up its $16.2 billion deal to buy Tiffany & Co., the largest acquisition in the conglomerate's history. When an analyst asked about the possibility that LVMH could buy Prada, which may be looking for a buyer according to recent media reports, Arnault said: "The Italian press lends me many ideas, which in a number of cases are wide of the mark."

As for Pucci, John Galliano or other smaller brands in the company's portfolio, he said they weren't for sale.

“It’s good to have small brands,” Arnault said. “Maybe one day we will come across a great designer who says, ‘I’ve got wonderful ideas for this small brand,’ and we tap into the archives.”

2. Tiffany tasked with doubling in the next decade.

The jewellery and watches division underperformed, growing only 3 percent on an organic basis to €4.4 billion. Tag Heuer was the main culprit, as reduced inventory levels and wholesale accounts cut sales in an already challenging market. The watches business is decreasing as a new generation of consumers looks to splurge on other types of accessories.

LVMH is turning to Tiffany to boost its jewellery business. Arnault said he charged the company with the same growth levels seen at Bulgari since LVMH acquired it in 2011: doubling revenue and increasing operating profit by a factor of five. He gave a ten-year deadline to meet that target.

Bernstein analyst Luca Solca said the goal is difficult but possible, aided by the fact that Tiffany’s margins are already higher than Bulgari’s.

3. Hedi Slimane’s Celine and Fenty are off to a slow start.

While LVMH does not break out sales for individual brands in its report, it does describe growing labels using terms like “solid,” “excellent” and “good.” Celine earned none of those adjectives, despite the brand’s transformational year and plenty of press attention.

“Celine may have some teething issues,” said Solca.

Hedi Slimane’s first collection for the brand debuted on the Paris runways just about a year ago. LVMH Managing Director Antonio Belloni said Celine had seen improvements and highlighted the launch of its first perfume in November.

“They have done a massive investment in Celine that will probably take longer than expected to bear its fruit," said luxury analyst Mario Ortelli. "The creative vision has probably been seen by the consumers as very similar to the precedent of Hedi and not yet distinctive of what Celine should stand for."

Rihanna's Fenty Couture brand, the first fashion label launched by LVMH since Christian Lacroix in 1987, did not match the kind of growth seen right out of the gate by her makeup line in 2017, judging from how executives talked about it during the earnings presentation.

“It’s off to a good start,” said Arnault. “Wait and see what comes next and what we do. She’s got loads of ideas, I’m sure we will do some very interesting things.”

4. LVMH’s e-commerce site 24S is not profitable

The conglomerate launched its own luxury e-commerce business under the umbrella of department store Le Bon Marché in 2017 and is the exclusive online third-party retailer for some of the portfolio’s brands, such as Celine, Dior and Louis Vuitton. But the site has yet to become a significant shopping destination.

“We haven’t found a way to make it profitable,” said Arnault, adding that the company developed the web business modestly and may still find a way to make it work. But, “it is almost insignificant for us.”

Ortelli said 24S has served as a "laboratory to try solutions for attracting the consumer in the multi-brand environment" and was likely never meant to "move the needle of LVMH results."

Arnault described himself as “somewhat sceptical” of the online sales business model because purchasing decisions are driven by so much by price comparisons. “All of them are losing money,” he said of the existing players. “The bigger they are, the more money they lose.”

Arnault expressed admiration for Amazon's business, though he said he was concerned that its marketplace model enabled counterfeiters. He said LVMH would not participate if Amazon launches a luxury marketplace.

5. Asia is not without its challenges.

Asia is LVMH’s largest and fastest-growing region, representing 30 percent of sales and growing 14 percent year-over-year in 2019. However, the ongoing protests in Hong Kong are taking a big bite, particularly with DFS, the retailer that sells liquor, cosmetics and other cosmetics to travellers.

The Wall Street Journal reported last week that Louis Vuitton plans to close its Times Square Mall after the landlord refused to decrease rents. The label has seven other stores in the city and is still planning to open another one in the airport in 2021.

Analysts had questions about the effects of the coronavirus outbreak, but LVMH executives said they were not concerned yet about longterm ramifications.

Japan proved troublesome in 2019, especially in the fourth quarter of the year when sales decreased by 4 percent. The company blamed an increased consumption tax rate that came into effect on October 1.

6. LVMH doubles down on "experience."

The conglomerate is making major moves into experiential luxury. In 2019, it acquired Belmond, the owner of Hotel Caruso on the Amalfi Coast and Orient Express trains from London to Venice, in a €2.6 billion deal. The hotel group has locations in 24 countries.

The company is also reportedly planning to develop new Cheval Blanc hotel locations in London and Paris, with the former anchoring a two street-wide development in Mayfair that is expected to include a spa, restaurants and stores.

“That will extend our business to a more experiential area,” said Arnault. “There’s a lot of synergies with our products.”

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.

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