TIF - Glimpse of Hope for the Luxury Sector
Lockdowns and travel bans have smashed the luxury industry which depends on physical stores for the bulk of its sales. But LVMH Moët Hennessy Louis Vuitton SE (OTC: LVMUY) offered a glimpse of hope last week as it reported a smaller than predicted drop in revenues. The French conglomerate saw strong growth at its biggest fashion brands that buoyed revenue in the third quarter and managed to partially offset steep declines in other segments of the luxury empire that has been slammed by the pandemic.
Third quarter earnings report
On Thursday, the world’s largest luxury goods conglomerate revealed sales of $14 billion, marking a 7 percent decrease. Analysts forecasted 12 percent drop which would have taken a billion dollars off the statement of financial position. Despite a significant rebound, the world’s largest luxury conglomerate still experienced a 7 percent drop in revenue compared to last year’s quarter. Perfumes & Cosmetics and Selective Retailing told an entirely different story as revenue dropped 16 percent and 29 percent, respectively. But steady growth in online sales, growth in skin care for Guerlain and Dior and a ‘promising start’ for the newly launched Fenty Skin provided a glimpse of hope as well as Sephora that gained market share in its main countries.
Bright spots
A rebound in fashion and leather goods segments somewhat amortized the fallout. Organic revenue at fashion and leather goods, the largest division, increased 12 per cent during the quarter. It is actually above the same quarter last year as some of the sales which were down by a third across the board during the first half of the year have been recaptured during summer. The wines and spirits division which houses Hennessy cognac and Moet & Chandon Champagne also proved to be more resilient than expected. Organic revenue fell 3 per cent when analysts were expecting a 7.9 per cent slump.
Tiffany drama
LVMH, the world’s biggest luxury company, stunned investors when it announced last month that it planned to pull out of a $16 billion deal to buy Tiffany & Co (NYSE: TIF). The US jeweller unveiled positive sales trends in an effort to keep the deal on track as suits and countersuits are being filed in Delaware. The U.S. state is not only the constituency home for presidential nominee Joe Biden, it’s also where many corporations are registered in the U.S., often due to friendly tax rules. But LVMH stands firm in its opinion that conditions necessary to close the acquisition of Tiffany have not been met and that arguments that Tiffany brought out are unfounded. LVMH holds dividend payments as proof of Tiffany’s mismanagement during the pandemic, suggesting that like other global firms, the jewelry retailer should have delayed them to conserve cash during these uncertain times.
Tiffany’s CEO Roger Farah shot back as he told Bloomberg this is a LVMH’s “blatant attempt to evade ia contractual obligation to pay the agreed-upon price for Tiffany.” This drama will be continued on January 5, the date set for a non-jury trial which are common for such corporate cases.
Outlook
It seems there are still consumers who are eager to splurge on luxury retail despite a gloomy economic backdrop. LVMH’s major beauty brands have been somewhat resilient due to a rising trend in skincare that partially amortized a fall in both make-up demand and international travel purchases. But, retail will remain hampered by the suspension of international travel for the foreseeable future.
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