LVMH shows resilience despite lockdowns (Press Releae)
Biggest brands in demand but pandemic pushes 2020 profit down by a third to €4.7bn
LVMH’s biggest brands, Louis Vuitton and Dior, finished off last year strongly, delivering double-digit sales growth in the fourth quarter, despite Covid-19 lockdowns that closed stores across Europe during the key Christmas shopping season.
The forecast-beating quarterly performance of the group’s fashion and leather goods division, its largest, helped offset steep declines at its duty-free shopping unit and in wines and spirits. Fashion and leather goods sales rose 18 per cent on a comparable basis in the fourth quarter to reach €7.3bn, ahead of analysts’ predictions for 12 per cent growth.
Overall group sales fell 3 per cent on a like-for-like basis in the quarter to €14.3bn.
The strong demand for LVMH’s biggest brands provides further evidence that even as the Covid-19 pandemic rages, people with means are still treating themselves to luxury goods as other types of spending, such as travel or restaurants, remain off limits.
“These numbers reported by LVMH are hugely impressive against a backdrop of an increasingly challenging operation environment,” said Fflur Roberts, an analyst at Euromonitor International.
But the pandemic’s impact on the world’s biggest luxury group has nonetheless been significant: annual net profit fell by roughly one-third to reach €4.7bn in 2020, while annual sales contracted 17 per cent to €44.7bn.
Bain & Co consultants have predicted that it will take up to three years for luxury sector revenues to recover to pre-crisis levels, although some analysts think a rebound could be faster.
Although it does not provide financial guidance, there are signs that LVMH, which is controlled by billionaire founder Bernard Arnault, is feeling more confident than in the early stages of the pandemic. The group said it would pay a dividend of €6 per share for 2020, taking the payout back to pre-crisis levels after having trimmed it to €4.80 last April to preserve cash to cope with Covid-19.
The pandemic has shaken the luxury goods sector by exposing its dependence on free-spending Chinese consumers, who often used to shop for handbags and jewellery while on trips to Europe’s fashion capitals.
With international travel still at a near-standstill, few analysts expect tourism flows to restart in any volumes this year, leaving luxury companies scrambling to meet growing Chinese demand at home, while also trying to attract more local clients in Europe.
Nevertheless, investors piled into the sector last year, pushing up valuation multiples to a 113 per cent premium to the MSCI Europe Index, which is about double the long-term historical premium, according to UBS.
LVMH shares have risen nearly 20 per cent from early January 2020, just before the pandemic, to reach €508 per share on Tuesday. They have outperformed rival Kering, whose shares have fallen 11 per cent over the same period, and Richemont’s 9 per cent rise, but fallen short of the 30 per cent rise for Hermès.
The company’s main task this year will be integrating the $15.8bn acquisition of US jeweller Tiffany and starting to restore the glamour of the well-known US brand. It closed the deal this month, and named a new management team that includes Mr Arnault’s 28-year-old son Alexandre Arnault.
Chief executive and chairman Mr Arnault said in a statement: “In a context that remains uncertain, even with the hope of vaccination giving us a glimpse of an end to the pandemic, we are confident that LVMH is in an excellent position to build upon the recovery.”