LV handbags still the rage in pandemic

(BLOOMBERG) – The demand for popular designer handbags is very strong even though people are staying home more these days. Sales of Louis Vuitton handbags and the easing of coronavirus lockdowns across the world helped revenue soar at fashion house LVMH.

In a stellar quarter for the owner of some of the world’s best-known luxury brands, like-for-like sales at the group rose 84 per cent in the three months through June, ahead of analysts’ expectations. Much of the gain was fuelled by demand for fashion and leather goods, particularly at Louis Vuitton, Christian Dior, Fendi, Loewe and Celine, the company said in a statement.

Organic revenue in this division jumped 120 per cent in the second quarter from a year earlier and 40 per cent from the same period in 2019. LVMH benefited from an easy comparison with 2020 as many stores remained shut last year due to the pandemic.

Demand “remains very strong”, chief financial officer Jean-Jacques Guiony said.

This is the “strongest first-half update ever” for LVMH and will probably prompt earnings upgrades for a company seen as the bellwether of the luxury goods industry, Mr Luca Solca, an analyst at Sanford C. Bernstein, said in a note to clients.

LVMH was active in the period, presenting a so-called cruise collection from Christian Dior at an Athens event attended by celebrities such as Catherine Deneuve and The Queen’s Gambit star Anya Taylor-Joy. It also launched a new sparkling-wine aperitif and reopened La Samaritaine, a department store in Paris that had been shut for more than 15 years.

Profit from recurring operations came in at €7.63 billion (S$12.2 billion) in the first half. Analysts had expected €6.62 billion. According to Mr Guiony, the operating cost base during the period was flat compared with 2019 even though sales were significantly higher. He added that capital expenditure was “tightly monitored”.

Looking ahead, Dior is preparing to reopen its store at 30 Avenue Montaigne in Paris in the second half, LVMH’s director of financial communications, Mr Chris Hollis, said on the analyst call. He added that Tiffany is set to launch a new collection of gold jewellery after an “excellent” first half, with “momentum particularly strong” in Asia and the United States.

LVMH is also seeing progress with local clients in Europe, although it isn’t sufficient to offset the lack of tourists in the region, Mr Guiony added. In June, billionaire LVMH founder Bernard Arnault predicted foreign visitors may not return to Paris within the next year or two.

Mr Guiony said the goal for travel retail business DFS in the second half of this year will be to break even but he warned it would be difficult. Activity at luxury hotel brand Belmond is better than last year, notably in the Mediterranean, but overall “it won’t be a fantastic season” because business picked up late compared with normal times.

Demand from Chinese consumers “remains as good it’s been for quite some time”, Mr Guiony said. Asia excluding Japan represented 38 per cent of LVMH’s total revenue in the first half, followed by a quarter for the US.

Speaking about its mergers and acquisitions strategy, he said absorbing its latest portfolio brand Tiffany will take some time and that the group typically doesn’t proceed with such big takeovers “every other year”. LVMH had made a 60 per cent stake purchase in Off-White, the streetwear brand by creator Virgil Abloh, who is also in charge of menswear design at Louis Vuitton.

The luxury conglomerate also said last month that it would take a minority investment in the new brand of Phoebe Philo, the former cult designer at Celine.

LVMH’s net financial debt increased to €15.27 billion at the end of June from €4.24 billion at the end of last year after closing the deal to buy Tiffany in January.

Shares in LVMH have rallied by 68 per cent in the past year in Paris.

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