LVMH Profit Plunged in First Half
27 Luglio 2020 - 10:07PM
Dow Jones News
By Matthew Dalton
PARIS -- French luxury conglomerate LVMH Moët Hennessy Louis
Vuitton SE said net profit plunged in the first half, as the
company struggled to cut costs in the face of sweeping boutique
closures during the coronavirus pandemic.
Revenue was relatively resilient, falling 27% in the half ended
June 30 to EUR18.4 billion ($21.6 billion), LVMH said Monday. The
results were buoyed by Louis Vuitton and Dior -- LVMH's biggest
fashion brands -- and its wines and spirits division, which
includes Hennessy cognac and Moët & Chandon champagne.
But profit fell 84% to EUR522 million, as the company couldn't
cut costs quickly enough to avoid a sharp decline in profit
margins. That was well below analysts' expectations.
The results show some of the challenges facing the luxury
industry as it struggles through lockdowns imposed by governments
around the world to fight the pandemic. Boutiques were closed first
in China, then in the West. While they have mostly reopened in
China and Europe, some in the U.S. are still shut as the country
faces surging coronavirus cases. Tourists are stuck at home,
depriving boutiques in luxury shopping destinations of their
top-spending customers.
LVMH is the world's biggest luxury company, and it normally
outperforms the broader industry.
The conglomerate, however, has a harder time cutting costs than
its competitors. LVMH brands produce most of their products
in-house and often directly operate the boutiques where their
handbags, high-fashion lines, perfumes, watches and jewelry are
sold. It is a strategy favored by French billionaire Bernard
Arnault, LVMH's chief executive and controlling shareholder, to
maintain meticulous control over the image of LVMH's brands.
But it also means LVMH can't cut costs by canceling orders to
third-party manufacturers, and it bears much of the cost of
shutting boutiques.
"We do manufacture inside, and so we suffered some lack of
absorption of fixed costs," said Jean-Jacques Guiony, LVMH's chief
financial officer. "It's particularly true at Vuitton, wines and
spirits and some other businesses."
"Doing the right thing sometimes costs in the short term, but
pays in the long term," said Bernstein analyst Luca Solca.
The company also had to write down products that it determined
wouldn't last beyond the current fashion season, hitting
profits.
Complicating matters for LVMH is the $16 billion deal it struck
late last year to buy U.S. jeweler Tiffany & Co. Mr. Arnault
has since questioned the deal, given the huge blow dealt by the
pandemic to the global luxury business. LVMH executives Monday gave
no sign they were backing away from the deal and said they were
still waiting for antitrust authorities to approve it.
Mr. Guiony said that business improved in June as more boutiques
around the world reopened. In the U.S. and Japan, two of LVMH's
hardest-hit markets in the second quarter, sales in June were flat
at Louis Vuitton and up slightly at Dior.
"And July will certainly see some improvement compared to June,"
Mr. Guiony said.
Write to Matthew Dalton at Matthew.Dalton@wsj.com
(END) Dow Jones Newswires
July 27, 2020 15:52 ET (19:52 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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