LVMH Profit Meets Estimates as Spirits Offset French Decline

  • Sales in liquor segment rose 13% in quarter, besting estimates
  • Fashion and leather goods revenue accelerated due to Fendi

LVMH Moet Hennessy Louis Vuitton SE, the world’s biggest luxury-goods maker, reported first-half profit in line with analyst estimates as stronger demand for its champagnes and cognacs offset lower tourism flows to France.

First-half profit from recurring operations was little changed at 2.96 billion euros ($3.25 billion), the Paris-based company said Tuesday. Analysts expected 2.92 billion euros. Sales rose 4 percent on an organic basis in the second quarter, compared to the consensus of 2.9 percent, an acceleration from the first quarter’s pace.

The wines-and-spirits business grew revenue 13 percent in the quarter, trouncing analysts’ expectations for 5 percent growth, boosted by champagne in the U.S. and Europe and improved cognac sales in China after two years of sluggish demand. Sales of fashion and leather goods, the company’s biggest segment, rose 1 percent, a pickup from the first quarter’s flat result.

“Overall a very strong quarter for LVMH,” Berenberg analyst Zuzanna Pusz said in a note. “The resilience of organic sales growth and margins of the two most profitable Wines and Spirits and Fashion and Leather Goods divisions in a difficult environment will be taken well by the market.”

Further Divestments

The owner of Louis Vuitton handbags and Christian Dior perfumes this week agreed to sell Donna Karan International for $650 million after failing to turn the brand around. LVMH’s most significant disposal in more than a decade may lead to further divestments, such as a sale of Marc Jacobs, according to Citigroup analyst Thomas Chauvet. It also could fuel a 1 billion-euro share buyback, Fred Speirs, an analyst at UBS Group AG, has said.

Chief Financial Officer Jean-Jacques Guiony said on a call with analysts that the company will review a share buyback in September, when it will have a better understanding of where LVMH’s net debt may be at the end of the year.

One concern, Pusz said, was watches and jewelry, where sales rose 2 percent, compared with the first quarter’s 7 percent gain. June shipments of Swiss watches declined for a 12th consecutive month as weak demand for timepieces has spread from the ailing Hong Kong market to the U.S., France and Italy. LVMH said it continues to gain market share in a “difficult environment,” and will double production capacity of its $1,500 TAG Heuer smartwatch.

Total revenue at LVMH for the six months gained 2.9 percent to 17.2 billion euros, edging the 17 billion euros analysts had estimated. Organic growth was 4 percent.

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