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Louis Vuitton to Gucci Ease Luxury Concern With China Growth

Booming demand for luxury goods in emerging markets such as China fueled sales and profit growth at LVMH Moet Hennessy Louis Vuitton SA, PPR SA and L’Oreal SA in the first half of 2012, helping ease concern about a slowdown.

LVMH, owner of the Givenchy and Fendi brands, said expansion in developing nations spurred a 20 percent gain in earnings in period. Emerging-market revenue at Gucci owner PPR rose 17 percent, helping profit beat analysts’ estimates, while L’Oreal said the region has become its biggest division as the cosmetics maker reported second-quarter sales growth that also topped estimates. All three companies are based in Paris.

“In a world where companies are struggling with diving European demand and media are awash with bad news, luxury-goods companies like LVMH and PPR seem to be coming from another planet,” said Luca Solca, global head of European equities at CA Cheuvreux. “The revenue and profit performance of PPR and LVMH are very satisfying.”

The luxury market in Asia-Pacific will expand as much as 16 percent in 2012, according to Bain & Co estimates. The forecast excludes China, which is expected to grow as much as 22 percent. Burberry Group Plc, the U.K.’s largest luxury company, this month reported sales that missed analysts’ estimates, causing concern that Europe’s debt crisis and slowing growth in China may be hurting demand for high-end goods.

PPR Gains

PPR said it got almost 38 percent of sales from emerging regions in the first half, while L’Oreal said so-called new markets comprised 35 percent of first-half revenue. About 27 percent of LVMH’s sales last year came from Asia, making the region its biggest in terms of revenue.

Mainland China is the “growth engine” of the Gucci brand in the Asia-Pacific region, PPR Chief Financial Officer Jean-Marc Duplaix said on a conference call.

PPR gained as much as 7.7 percent to 122 euros in Paris trading, the steepest intraday advance since May 10, 2010, after reporting first-half estimates the beat estimates. Recurring operating income at the owner of sporting-goods maker Puma SE rose 20 percent to 815.3 million euros ($1 billion) in the six months ended June 30, compared with the 785 million-euro median of seven analysts’ estimates compiled by Bloomberg.

PPR “saw a sustained high pace of growth” in emerging markets, the company said after markets closed yesterday.

LVMH Slips

“We are confident that we will be able to continue growing our revenue in the second half of 2012 and that our full-year financial performance will outstrip that of 2011,” PPR Chief Executive Officer Francois-Henri Pinault said in a statement.

LVMH is also approaching the second half with confidence, Chairman and Chief Executive Officer Bernard Arnault said.

Still, an increase in first-half profit from recurring operations to 2.66 billion euros missed the 2.71 billion-euro median of six estimates compiled by Bloomberg. LVMH fell as much as 3.7 percent to 120.25 euros in Paris trading today.

A declining profit margin in the company’s fashion and leather unit was “the main negative surprise,” Deutsche Bank AG analyst Warwick Okines wrote in a note. Profitability was affected by higher marketing costs at Louis Vuitton, he said.

Sales at LVMH rose 26 percent to 12.97 billion euros, or 12 percent excluding currency swings and acquisitions.

“Asia continues to be a region of substantial opportunity,” Chris Hollis, LVMH director of financial communications, said on a conference call with analysts.

L’Oreal Growth

Second-quarter revenue at L’Oreal climbed 12 percent to 5.57 billion euros, the Paris-based company said after markets closed, topping the 5.47 billion-euro median of eight analysts’ estimates compiled by Bloomberg. The shares rose 0.5 percent to 97.82 euros as of 9:26 a.m. in Paris.

Excluding acquisitions and currency shifts, sales rose 5.7 percent, L’Oreal said, led by the Asia-Pacific and Africa and Middle East regions. The luxury division was the best-performing unit for sales growth, the company said.

“The rise of the new markets, now our number one geographic zone, is continuing, driven by the dynamism of Asia and Africa, Middle East,” L’Oreal Chairman and Chief Executive Officer Jean-Paul Agon said in a statement.

Still, L’Oreal saw a slowdown in the luxury market in the second quarter, which included China, Korea and Taiwan, as well as the U.S., Agon said on a conference call.

The maker of Biotherm Aquasource moisturizer repeated it’s confident it can outperform the global cosmetics market, which it estimated in April will grow about 4 percent this year.

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