LVMH profits fall worse than expected as COVID-19 pandemic hits sales
Luxury behemothic LVMH's operating profit dived 68 per cent in the first half of the year fifty-fifty equally the world'southward biggest luxury group slashed spending on store leases, hiring and advertising to cope with the pandemic.
The group, controlled by French billionaire Bernard Arnault, delivered weaker than expected operating profit of €1.67 billion (South$2.7 billion) and an operating margin of nine per cent as store closures and travel restrictions gored its concern, which relies heavily on Chinese and United states tourists shopping in Europe's fashion capitals.
Analysts had forecast first-half operating profit of €2.7 billion, co-ordinate to FactSet consensus.
Sales of style and handbags, led by the grouping's biggest brands Louis Vuitton and Dior, held up meliorate than those of watches and jewellery from brands such as TAG Heuer and Bulgari. Second-quarter sales fell 38 per cent on a like-for-similar footing to €7.8 billion, worsening later a 17 per cent similar-for-like decline in the first quarter.
"Our big brands have proven quite resilient, often more than the smaller ones, in terms of peak and bottom line," said Chief Financial Officer Jean Jacques Guiony. "But travel restrictions take hit parts of our business, such as DFS, quite hard," he added, referring to LVMH's unit of measurement that operates duty-free stores in airports.
"We cut costs past about 30 per cent in the 2nd quarter just we practice non want to cutting likewise deeply so equally to be ready for the recovery when information technology inevitably comes," he said.
"Our big brands have proven quite resilient, often more than the smaller ones, in terms of summit and lesser line." – Jean Jacques Guiony
LVMH does not upshot fiscal forecasts and so has declined to give specifics on the prospects for the recovery. Only it said at that place were "stiff signs of an upturn in activeness since June", driven past places such as China and Japan where outbreaks have calmed, adding that information technology hoped the trends would exist confirmed in the 2d one-half of the yr.
Analysts at Bain have forecast that sales of personal luxury goods will contract past 25 to 30 per cent this twelvemonth, and that they will not return to last year's level of €281 billion until 2022 or 2023.
Although the ultra-wealthy accept continued to spend on everything from diamonds to fine art during the pandemic, the luxury sector depends on a much broader swath of aspirational customers tempted by the allure of a Louis Vuitton wallet or Bulgari perfume. Those were the consumers who often trade downward or do not purchase when an economic crisis hits, analysts said.
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Much volition depend on Chinese shoppers, who deemed for roughly xl per cent of sales globally final twelvemonth but drove 80 per cent of the growth, according to Jefferies. The pandemic has changed how they shop past limiting travel and accelerating an before trend of "repatriation" of sales to the mainland.
"The rules of the game are changing – the demand shift to Mainland china will not reverse," said Jefferies annotator Flavio Cereda. "Simply LVMH are well equipped to deal with this in one case the time is right."
Asked whether LVMH would be opening more than stores in China, Guiony said it was too early to commit to such investments. Instead, LVMH will initially focus on expanding e-commerce in Cathay, and improving "clienteling", which refers to developing relationships with regular customers.
LVMH shares have held upwardly better than some rivals this yr, falling four per cent compared with a 15 per cent drib for Kering and 22 per cent for Richemont. Shares in Hermes, maker of the Birkin bag, have risen 11 per cent, although information technology has a more express free float.
Separately on Mon (Jul 27), Italian luxury group Moncler reported 2nd-quarter sales down 52 per cent to €93.ii meg. The maker of high-stop puffy coats also swung to a loss of €31.6 million in the first half compared with a €70 1000000 profit in the same flow final year.
By Leila Abboud © 2022 The Fiscal Times
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Source: https://cnalifestyle.channelnewsasia.com/obsessions/lvmh-profits-fall-covid-19-pandemic-237631
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