LVMH Falls as Fashion and Leather Goods Sales Slow GrowthAndrew Roberts
LVMH Moet Hennessy Louis Vuitton SA fell in Paris trading after slowing fashion and leather-goods growth suggested that efforts to turn around its biggest brand have yet to take hold.
Revenue at LVMH’s fashion and leather-goods division rose 4 percent on an organic basis in the first nine months of 2013, the company said yesterday, slowing from the first-half’s 5 percent gain and trailing the 6 percent estimate of analysts.
Vuitton, which Exane BNP Paribas estimates accounts for more than half of LVMH’s earnings, is slowing retail expansion, including more precious materials in its collections and adding products with fewer logos in an effort to appeal to the wealthiest shoppers. Such initiatives will take “at least another 12 months” to produce tangible results, Allegra Perry, an analyst at Cantor Fitzgerald, said after the report.
Although the reaction of clients to Louis Vuitton’s new soft leather-product ranges is “very good, in terms of impact on global sales it’s not a major thing,” Chief Financial Officer Jean-Jacques Guiony said today on a conference call, adding that the brand’s organic revenue growth was “slightly below” the fashion and leather-goods division’s 3 percent rate last quarter. The transition “is going to take some time.”
The stock dropped 4.3 percent to 138.70 euros, wiping out this year’s gain.
Louis Vuitton this year introduced bags such as the Capucine bag, which has been worn by actress Angelina Jolie, and the W, a combination of a canvas and calfskin leather purse that can sell for $4,000.
LVMH’s fashion and leather-goods growth “is very disappointing following significant excitement” around these bags when they were introduced, said Julian Easthope, an analyst at Barclays Capital in London.
The company, which published its sales numbers after markets closed yesterday, said it remains confident for 2013, even in the face of an uncertain European economic climate. LVMH will continue to focus on innovation and geographic expansion in selected markets, it said.
The world’s largest luxury goods maker is boosting investment in some of its smaller fashion brands and buying stakes in others to help offset slowing growth at Vuitton, its biggest source of revenue. It’s also shuffling Vuitton’s management, with Delphine Arnault joining as executive vice president and artistic director Marc Jacobs leaving after 16 years to focus on his own label.
“We think the opportunity on the contemporary market is extremely strong and we intend to benefit from it,” said Guiony. “That’s the logic of Marc Jacobs focusing on his own brand.”
Total third-quarter revenue advanced to 7.02 billion euros ($9.5 billion) from 6.9 billion euros, LVMH said. Analysts predicted 7.24 billion euros, according to the median of 15 estimates compiled by Bloomberg. Sales climbed 8 percent excluding acquisitions, disposals and currency moves, missing the 10 percent gain analysts had expected.
LVMH’s performance “seems to suggest growth is moderating to a new normal, which is weighing on the whole sector,” said Luca Solca, an analyst at Exane BNP Paribas.
Gucci-owner Kering SA fell 0.9 percent, Swatch Group dropped 1.4 percent and Cie. Financiere Richemont SA slid 1.5 percent.
L’Oreal SA declined 1.5 percent in Paris after LVMH said nine-month organic revenue at its perfume and cosmetics unit rose 5 percent, slowing from the first-half’s 6 percent increase. Analysts predicted a 7 percent gain.
Perfume and cosmetics demand softened in Europe and China in the third-quarter, Guiony said. New product introductions should help LVMH “do better in the last part of the year, which is awfully important for this business,” he said.
Growth accelerated however at the wines and spirits and watches and jewelry divisions, while the selective retailing unit, which includes the Sephora beauty chain and DFS duty-free stores, maintained its 19 percent growth pace.