WWD : LVMH Sees Sharp Rebound in China After 15% Q1 Sales Drop

LVMH Sees Sharp Rebound in China After 15% Q1 Sales Drop
The world's biggest luxury group said its top brands, including Louis Vuitton, saw sales in Mainland China rise by more than 50 percent in April.

PARIS — LVMH Moët Hennessy Louis Vuitton said it has seen a sharp acceleration in sales in Mainland China in April as consumers flock back to stores after the coronavirus lockdown, and it hopes the rest of the world will begin to recover from May or June.

Jean-Jacques Guiony, chief financial officer of LVMH, said its biggest brands — Louis Vuitton, Dior and Sephora — began to see a “significant” improvement with the progressive reopening of stores in Mainland China from mid-March.

“The numbers became positive in the second half of March and have been gathering speed in April,” he said on a conference call after the group reported that revenues fell 15 percent in the first quarter after the COVID-19 pandemic forced the closure of many of its stores and factories worldwide.

“We’ve seen very substantial growth rates, sometimes in excess of 50 percent, so it really shows the appetite of Chinese people after two months of lockdown to come back to stores and come back to their previous patterns of consumption,” Guiony said.

Among the brands enjoying growth of more than 50 percent since its stores in Mainland China reopened is Louis Vuitton, which is estimated to account for a quarter of the group’s sales, a source at LVMH confirmed.

Nonetheless, the improvement in domestic spending has not been sufficient to offset the sharp drop in Chinese luxury spending overseas due to ongoing travel restrictions. The evolution of overall spending by Chinese nationals at home and abroad is “improving, but still negative,” Guiony said.

Group sales were down 17 percent in organic terms in the first three months of the year, broadly in line with a Bloomberg consensus estimate for a 17.8 percent drop. LVMH added that it was too early to evaluate the impact of store and factory closures on its annual sales and results.

“We can only hope that the recovery happens gradually from May or June after a second quarter which will still be very affected by the crisis, in particular in Europe and the U.S.,” the world’s biggest luxury group said in a statement.

Organic sales in the first quarter were down 32 percent in Asia, excluding Japan. They fell 10 percent in Japan and Europe, and 8 percent in the U.S., reflecting the spread of the COVID-19 epidemic across the globe during the period.

Guiony said he was confident in the strength of underlying demand. “There are a lot of people saying that things will never be the same again. I heard that a few times already. I don’t believe, frankly, in that,” he said.

“The most likely scenario is that the crisis will be over from an epidemic viewpoint in some months, if not weeks, so we are not talking about something that’s supposed to have a lasting impact on the business,” he added.

Nonetheless, LVMH will be making some major adjustments. It will trim its planned dividend by 30 percent to 4.80 euros a share.

Bernard Arnault, chairman and chief executive officer of LVMH, and each of the other executive board members have decided to forgo their salaries for the months of April and May, in addition to their variable compensation for 2020. As ceo of Christian Dior Group, Sidney Toledano will do likewise.

Guiony said LVMH will slash its capital expenditures budget by 40 percent this year, with most of the spending postponed until 2021. “We are doing whatever we can do and we have to do in order to offset the current situation,” he said.

The group has also been cutting operating costs such as rents. While landlords in Mainland China have agreed to bear a portion of the cost of compulsory store closures, in Europe and the U.S., the situation is more mixed, with a minority of landlords being “quite inflexible,” Guiony said.

“This is a bit disappointing and obviously will have long-lasting consequences in the way we deploy our capital in the future,” he remarked.

LVMH’s revenues totaled 10.6 billion euros in the three months ended March 31. The key fashion and leather goods segment posted sales of 4.64 billion euros, down 10 percent in like-for-like terms, versus a consensus forecast of a 15.8 percent decline.

While Vuitton’s performance was in line with the division as a whole, Dior performed better, while the other brands did worse, Guiony said. He noted the impact on sales was “reasonably homogenous” across product categories, and online sales saw rapid growth.

“When we were strong already, as it is the case with Vuitton or with Sephora, the strength in online plays and we are getting very substantial increases in the online business across the board, not only in China. It’s true in Europe, it’s true in the U.S., it’s true in Japan,” he said.

“It offsets a sizable portion — I will not quantify it — of the drop that we are witnessing recently in the brick-and-mortar business due to the closures,” Guiony added.

He expects spring-summer collections to remain on shelves a little longer, with the aim of drawing down inventories. “We’ll make available the fall collection a little bit later, and progressively we will get back to the normal rhythm of collections, which is a bit of a paradox, because we sell spring products in the winter and fall products in the summer,” he said.

LVMH is confident that production of pre-fall and fall collections will resume fairly quickly. Louis Vuitton has reopened the majority of its 16 production sites in France to make face masks, and hopes to get leather goods production up and running again as soon as stores reopen.

“As far as Italian manufacturers are concerned, they have proven in the past a very high degree of flexibility, so we have no particular worry there,” Guiony said. “When the conditions are favorable, they will resume production and they should be able to produce whatever we need for the second part of the year.”

Sales of perfume and cosmetics were down 19 percent in organic terms, while selective retailing — which includes Sephora and DFS, LVMH’s travel-retail business — tumbled 26 percent. Guiony reckoned it was too early to say if DFS will be loss-making for the full year, but said the retailer expects to cut costs by more than 25 percent.

The watches and jewelry division recorded a 26 percent drop in organic revenue, with Bulgari sharply hit by the closure of its stores in Asia. Meanwhile, organic sales of wines and spirits were down 14 percent.

Guiony said the luxury properties in LVMH’s Belmond division, which include the Hotel Cipriani in Venice and the Copacabana Palace in Rio de Janeiro, were unlikely to reopen in early April as planned and were looking to trim overheads, with some renovations postponed until next year.

But LVMH’s $16.2 billion acquisition of Tiffany & Co. — the largest deal in the history of the luxury sector — is still on track. “We will stick to the contract, full stop,” Guiony said.

Arnault praised the group’s employees for helping to produce masks and hand sanitizer, and procuring medical equipment. “Thanks to everyone’s commitment and the strength of its brands, the LVMH group maintains good resilience in the face of this worldwide challenge,” he said in a statement.

“For several weeks, our teams have once again demonstrated that excellence, creativity and responsiveness will allow us not only to overcome this crisis but, above all, to emerge even stronger when it fades,” he added.

LVMH unusually issued guidance last month, saying it expected overall first-quarter revenues to fall between 10 and 20 percent as a result of the widespread lockdowns to contain the spread of COVID-19.

The luxury giant had posted organic growth of 11 percent in the same period a year ago, and recorded an 8 percent rise in like-for-like sales in the fourth quarter of 2019.

The industry bellwether’s quarterly sales figures come before other luxury rivals Kering, due to publish figures on April 21, and Hermès on April 23. Compagnie Financière Richemont reports annual results on May 15.

The luxury market is expected to contract by 25 to 30 percent in the first quarter, according to Bain & Co., which also modeled three scenarios for the whole of 2020 — with the worst forecasting a drop of up to 35 percent in sales this year.

But with marquee brands like Louis Vuitton, a diversified portfolio and deep cash reserves, LVMH is expected to weather the storm better than most.

Exane BNP Paribas said in light of the International Monetary Fund’s forecast of a 3 percent contraction in the global economy, it now expects the luxury market to shrink by 20 percent in 2020, versus a forecast of 4 percent growth at the beginning of the year.

“LVMH has a significant scale advantage in an industry where fixed costs prevail, and it is the most diversified of all luxury companies,” analysts Melania Grippo and Guido Lucarelli said in a report this week.

“LVMH is strong in accessible product categories — Champagne, fragrances and cosmetics — where barriers to entry are high, making it one of the best positioned to tap into global middle class development,” they added.

Amid heightened uncertainty, recession-hit consumers are expected to seek refuge in heritage brands.

“Stronger brands that enjoy ‘must-have’ status in consumers’ minds will stand tall,” Luca Solca, analyst at Bernstein, said in a report titled “Global Luxury Goods — COVID-19: What comes next?” published on Thursday.

“The good news is that investors agree that the long-term prospects for the luxury sector remain strong, and that the current predicament — as serious as it is — will be temporary,” he added.

FT Interview: Emmanuel Macron says it is time to think the unthinkable

FT Interview: Emmanuel Macron says it is time to think the unthinkable
France’s president believes the coronavirus pandemic will transform capitalism — but leaders need to act with humility

“We are all embarking on the unthinkable,” says Emmanuel Macron, leaning forward at his desk in the Elysée Palace in Paris after an aide has cleaned the surface and the arms of his chair with a disinfectant wipe.

Until now, Mr Macron has always had a big plan for the future.

After winning power in a surprise election victory in 2017, the hyperactive French president announced a blizzard of ambitious proposals for reforming the EU that perplexed his more cautious European partners. When he chaired the G7 group of big economies last year, he tried to reconcile the US and Iran and make peace between Russia and Ukraine. His government has legislated furiously to modernise France.

The coronavirus pandemic, however, has left even Mr Macron groping for solutions to a global health crisis that has killed almost 140,000 people, and wondering how to save the French and world economies from a depression comparable to the crash of 1929.

“We all face the profound need to invent something new, because that is all we can do,” he says.

Macron on . . . China

He still has plans, of course. He wants the EU to launch an emergency investment fund of hundreds of billions of euros through which the reluctant northern members would have to support Italy and Spain, where many thousands have died from Covid-19. And he wants richer nations to help Africa with an immediate moratorium on bilateral and multilateral debt payments.

But perhaps for the first time, an uncharacteristically hesitant Mr Macron seems unsure whether or when his proposals will bear fruit. “I don’t know if we are at the beginning or the middle of this crisis — no one knows,” he says. “There is lots of uncertainty and that should make us very humble.”

It is a sign of “social distancing” and travel disruption in extraordinary pandemic times that the normally busy Elysée now has only a skeleton staff on site and that the FT’s editor attends the interview via video link. The usually tactile Mr Macron — of whom it was once said that “he could seduce a chair” — is forced to greet his guests from afar in the ornate salon doré, the golden room looking out over the palace lawns towards the Champs-Elysées.

This room was first used as the French president’s office by General Charles de Gaulle. In two speeches to the nation a month ago, Mr Macron deliberately adopted the tone of his presidential role model, declaring all-out war on the virus, imposing some of the strictest controls in Europe on people’s freedom of movement to slow the spread of the disease and declaring that his government would save jobs and companies “whatever the cost”. Behind his desk is a framed example of a $500 Anglo-French first world war bond from 1915.

Yet in recent weeks the bellicose rhetoric has given way to a more reflective view of how to handle the pandemic, accompanied by admissions of logistical failures that have left French doctors, nurses and essential workers desperately short of protective masks and of tests to measure the spread of the virus.

Unlike other world leaders, from Donald Trump in the US to Xi Jinping in China, who are trying to return their countries to where they were before the pandemic, the 42-year-old Mr Macron says he sees the crisis as an existential event for humanity that will change the nature of globalisation and the structure of international capitalism.

As a liberal European leader in a world of strident nationalists, Mr Macron says he hopes the trauma of the pandemic will bring countries together in multilateral action to help the weakest through the crisis. And he wants to use a cataclysm that has prompted governments to prioritise human lives over economic growth as an opening to tackle environmental disasters and social inequalities that he says were already threatening the stability of the world order.

But he does not hide his concern that the opposite could happen, and that border closures, economic disruption and loss of confidence in democracy will strengthen the hand of authoritarians and populists who have tried to exploit the crisis, from Hungary to Brazil.

Macron on . . . the environment

“I think it’s a profound anthropological shock,” he says. “We have stopped half the planet to save lives, there are no precedents for that in our history.”

“But it will change the nature of globalisation, with which we have lived for the past 40 years . . . We had the impression there were no more borders. It was all about faster and faster circulation and accumulation,” he says. “There were real successes. It got rid of totalitarians, there was the fall of the Berlin Wall 30 years ago and with ups and downs it brought hundreds of millions of people out of poverty. But particularly in recent years it increased inequalities in developed countries. And it was clear that this kind of globalisation was reaching the end of its cycle, it was undermining democracy.”

Mr Macron bristled when asked if erratic efforts to curb the Covid-19 pandemic had not exposed the weaknesses of western democracies and highlighted the advantages of authoritarian governments such as China.

There is no comparison, he says, between countries where information flows freely and citizens can criticise their governments and those where the truth was suppressed. “Given these differences, the choices made and what China is today, which I respect, let’s not be so naive as to say it’s been much better at handling this,” he says. “We don’t know. There are clearly things that have happened that we don’t know about.”

The French president insists that abandoning freedoms to tackle the disease would pose a threat to western democracies. “Some countries are making that choice in Europe,” he says in an apparent allusion to Hungary and Viktor Orban’s decision to rule by decree. “We can’t accept that. You can’t abandon your fundamental DNA on the grounds that there is a health crisis.”

Mr Macron is especially concerned about the EU and the euro. Banging the desk repeatedly with his hands to emphasise his points, he says both the union and the single currency will be threatened if the richer members, such as Germany and the Netherlands, do not show more solidarity with the pandemic-stricken nations of southern Europe.

That solidarity should come in the form of financial aid funded by mutualised debt — anathema to Dutch and German policymakers, who reject the idea of their taxpayers repaying loans to Greeks or Italians.

Mr Macron warns that failure to support the EU members hit hardest by the pandemic will help populists to victory in Italy, Spain and perhaps France and elsewhere.

Macron on . . . threats to democracy

“It’s obvious because people will say ‘What is this great journey that you [the EU] are offering? These people won’t protect you in a crisis, nor in its aftermath, they have no solidarity with you,’” he says, paraphrasing populist arguments politicians will use about the EU and northern European countries. “‘When immigrants arrive in your country, they tell you to keep them. When you have an epidemic, they tell you to deal with it. Oh, they’re really nice. They’re in favour of Europe when it means exporting to you the goods they produce. They’re for Europe when it means having your labour come over and produce the car parts we no longer make at home. But they’re not for Europe when it means sharing the burden.’”

For Mr Macron, the richer EU members have a special responsibility in the way they deal with this crisis. “We are at a moment of truth, which is to decide whether the European Union is a political project or just a market project. I think it’s a political project . . . We need financial transfers and solidarity, if only so that Europe holds on,” he says.

In any case, Mr Macron argues, the current economic crisis triggered by Covid-19 is so grave that many EU and eurozone members are already in effect flouting injunctions in European treaties against state aid for companies.

The ability of governments to open the fiscal and monetary taps to stave off mass bankruptcies and save jobs will be pertinent for Mr Macron’s own uncertain political future in France.

With the national economy forecast to shrink by 8 per cent this year and millions of temporarily laid-off workers still being paid thanks only to a €24bn official “partial unemployment” scheme, the government is expecting a 2020 budget deficit of 9 per cent of gross domestic product, the highest since the second world war.

Although often feted abroad for his energetic liberal internationalism, Mr Macron has recently been treated by domestic opponents from the far-left to the far-right — including the anti-establishment gilets jaunes demonstrators — as a president of the rich, a former Rothschild investment banker who wants to impose free-market capitalism on his reluctant citizens.

In reality, Mr Macron had already begun to slow his reform drive before the pandemic in the face of stiff opposition from a resurgent left and from the vestiges of the gilets jaunes movement. After a busy two years liberalising the labour market, reducing the tax burden on workers and entrepreneurs and trying to simplify the country’s expensive pensions systems, he backtracked last year on cutting the size of the civil service and then last month suspended reforms entirely for the duration of the coronavirus crisis.

He has tried to adopt environmental causes and soften his image to woo the left and the Greens ahead of a 2022 election that he hopes will be another second-round election run-off against Marine Le Pen, leader of the extreme right Rassemblement National party.

Covid-19 might offer an opportunity to make the case that he is trying to humanise capitalism. That includes, in his view, putting an end to a “hyper-financialised” world, greater efforts to save the planet from the ravages of global warming and strengthening French and European “economic sovereignty” by investing at home in industrial sectors such as electric vehicle batteries, and now medical equipment and drugs, in which the EU has become overdependent on China.

Macron on . . . Europe

There is a realisation, Mr Macron says, that if people could do the unthinkable to their economies to slow a pandemic, they could do the same to arrest catastrophic climate change. People have come to understand “that no one hesitates to make very profound, brutal choices when it’s a matter of saving lives. It’s the same for climate risk,” he says. “Great pandemics of respiratory distress syndromes like those we are living through now used to seem very far away, because they always stopped in Asia. Well, climate risk seems very far away because it affects Africa and the Pacific. But when it reaches you, it’s wake-up time.”

Mr Macron likened the fear of suffocating that comes with Covid-19 to the effects of air pollution. “When we get out of this crisis people will no longer accept breathing dirty air,” he says. “People will say . . . ‘I do not agree with the choices of societies where I’ll breathe such air, where my baby will have bronchitis because of it. And remember you stopped everything for this Covid thing but now you want to make me breathe bad air!’”

Like some of his predecessors — and unlike some of his counterparts in other western democracies — Mr Macron is overtly intellectual, always brimming with ideas and projects that sometimes grate with his more sober European counterparts.

Among the books piled haphazardly — or perhaps artfully — behind his desk are works by the late Socialist president François Mitterrand and Pope Francis, the letters exchanged by Flaubert and Turgenev, and a few copies of Mr Macron’s autobiography, Revolution: Reconciling France, prepared for the 2017 election campaign.

Yet when asked what he has learnt about leadership, he candidly admits that it is too early to tell where this global crisis will lead. Mr Macron says he has deep convictions about his country, about Europe and the world, and about liberty and democracy, but in the end the qualities that are needed in the face of the implacable march of events are humility and determination.

“I never imagined anything because I’ve always put myself in the hands of fate,” he says. “You have to be available for your destiny . . . so that’s where I find myself, ready to fight and promote what I believe in while remaining available to try and comprehend what seemed unthinkable.”

>>> US After Hours Summary: Seeing broad-based strength on Trump plan

After Hours Summary: Seeing broad-based strength on Trump plan to re-open economy; also positive GILD news is boosting market as well

After Hours Gainers:

Several beaten down industries are moving higher on Trump phased plan to re-open economy:

  • Restaurants: MCD, SBUX, CMG, YUM, DPZ, DRI, WEN, EAT, TXRH, PZZA, CBRL, JACK, CAKE, CHUY
  • Cruise Lines: CCL, RCL, NCLH
  • Airlines: AAL, ALGT, ALK, BA, DAL, HA, JBLU, LUV, SAVE, UAL
  • Hotels: CHH, DRH, H, IHG, MAR, SHO
  • Casinos: LVS, MGP, WYNN, VICI, MGM, MLCO, TSG, GLPI, CZR, BYD, PENN, MCRI
  • Event Planning: LYV
  • Ride Share companies: LYFT, UBER
  • Amusement Parks: SIX, FUN, DIS
  • Health Clubs: PLNT

Companies trading higher in after hours in reaction to earnings/guidance: UBER +8.5% (withdraws 2020 guidance), FUN +8.3% (outlines COVID-19 response; withdraws long-term financial guidance; suspends quarterly distribution), ISRG +5.4%, MRTN +3.7%, AMWD +1.8% (withdraws fiscal 2020 outlook)

Companies trading higher in after hours in reaction to news: BCRX +24.7% (in sympathy with GILD), CEQP +23.2% (maintains distribution of $0.625 per unit; reduces cap-ex by over $40 mln), MRNA +17.6% (announces award from US govt to accelerate development of the co's mRNA vaccine candidate), GILD +15.9% (early trial data said to suggest that COVID-19 patients are responding to treatment with remdesivir, according to Stat News), JWN +12% (announces additional measures to strengthen its financial position), BA +9.8% (to resume production of Commercial Airplanes in Puget Sound facilities next week), JACK +8.1% (names new CEO), EOLS +5.6% (announces pre-emptive plan to support US aesthetic neurotoxin market in light of the COVID-19 pandemic), TXT +5.1% (awarded $390 mln Navy contract), LULU +4.1% (announces departure of CFO), AAPL +3.3% (higher following comments from company wide meeting), FB +2.9% (cancels large physical events through June 2021), TGT +1.5% (enters into $900 mln unsecured revolving credit facility)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: WAL -11.3%, CUTR -8.9% (guides Q1 revs below consensus, also announces stock offering)

Companies trading lower in after hours in reaction to news: NLS -9.9% (Trump plan to re-open economy allows for gyms to re-open), PTON -7.2% (Trump plan to re-open economy allows for gyms to re-open)

FT : Fury at emergence of rival bid for Jewish Chronicle

Fury at emergence of rival bid for Jewish Chronicle
Consortium including former No 10 spin-doctor counters attack over funding and editorial policy

A consortium of political insiders, broadcasters and bankers have been accused of launching a “shameful attempt to hijack the world’s oldest Jewish newspaper” after submitting a last-minute bid to acquire the liquidated assets of the Jewish Chronicle.

Last week, the owners of the London-based Jewish Chronicle — which was founded in 1841 — and the Jewish News said they would seek a creditors’ voluntary liquidation after previously signalling an intention to merge earlier in the year.

In co-ordinated statements, both said they needed to take drastic action to survive the tough media conditions brought on by the coronavirus outbreak.

The Kessler Foundation, a charitable trust that has owned the Jewish Chronicle since 1984, submitted an offer to the proposed liquidators Begbies Traynor this week, which would have seen them acquire the assets of both publications and run them as a merged publication.

But a rival bid from a consortium through lawyers Osborne Clarke has also been submitted, according to two people familiar with the matter.

The rival consortium is being fronted by former Downing Street head of communications Robbie Gibb, biographer William Shawcross, former Labour MP John Woodcock, Rabbi Jonathan Hughes of Radlett United Synagogue, and prominent broadcasters John Ware and Jonathan Sacerdoti.

Also involved are Robert Swerling, corporate and institutional banking chief operating officer of Investec; Jonathan Kandel, a partner at Kirkland and Ellis; Tom Boltman, head of strategic initiatives at Kovrr; and Mark Joseph, the managing partner at EMK Capital. 

The rival bid was aimed at putting the publications on “sound financial footing”, according to a person involved with the consortium.

Alan Jacobs, the current chairman of the Jewish Chronicle, launched a scathing attack on the rival bid for not immediately revealing the exact source of its funding, or who it intended to install in editorial leadership positions.

“A bid for the Jewish Chronicle using money from an unidentified source and fronted by a group of individuals who refuse to tell the world anything of their plans looks like a shameful attempt to hijack the world’s oldest Jewish newspaper,” Mr Jacobs told the Financial Times.

“The consortium members need to come forward immediately to explain their motives and plans.”

The two publications have a combined circulation of around 40,000 copies a week, according to industry figures. Despite the small circulation, both have made an impact in political circles, most recently in coverage of the Labour party’s anti-Semitism scandal.

As small print-focused news publications, both titles have also experienced recent financial problems. In 2018, the Jewish Chronicle posted a £1.5m loss, according to its most recent filings with Companies House. Last year, the publication was saved by donations from unnamed individuals.

Under its plans for a merged publication, the Kessler Foundation said Jewish Chronicle editor Stephen Pollard would step down, while veteran editor of the Jewish News Richard Ferrer would take the helm of the newly merged publication.

“The actual and perceived independence of the Jewish Chronicle lies at the heart of everything it does,” Mr Ferrer said. “The Kessler Foundation, the charity that currently owns the Jewish Chronicle, has put in place inviolable mechanisms to protect that editorial independence from outside influence.”

All 54 journalists and support staff of both publications were told they were to be made redundant on Tuesday last week, the first night of Passover.

A statement from the consortium said their offer would include an investment of millions of pounds over the next five years and a commitment to editorial independence and impartiality at “an extraordinary publication”.

“We are deeply disappointed with the Kessler Foundation's conduct during this process, and consider it a cynical move to have put the paper into liquidation during the Jewish festival of Passover and over the bank holiday weekend, a move designed to rush through an outcome that maintains their control, but is clearly to the detriment of the paper and its creditors,” the statement said.
 
“With the emergence of a highly competitive rival bid, that move has now been exposed and has backfired. We are confident that anyone who cares about the future of The Jewish Chronicle, will see their scheme for what it is, and support our bid.”