FILE PHOTO: LVMH luxury group Chief Executive Bernard Arnault announces their 2019 results in Paris, France, January 28, 2020. REUTERS/Christian Hartmann/File Photo
LVMH revenue slid in the second quarter as boutiques shut down worldwide and international tourism ground to a halt.
Revenue fell 38% on an organic basis in the three months through June, the company said in a statement on Monday. Analysts expected a 42% drop.
LVMH follows Richemont and Burberry in reporting what analysts expect will be the industry’s worst quarter ever because of the effects of the pandemic. The company cited signs of recovery across several businesses in June and a particularly strong rebound in China, and said it expects further improvement in July. Even so, profit missed analysts’ estimates in the first six months of 2020.
"LVMH showed relative resilience at the revenue level in the first half of the year,” said Luca Solca, an analyst at Bernstein. "On the profit side, it’s obvious that it’s not been able to slash costs with the same pace as the revenue decline due to the fixed-cost base.”
Profit from recurring operations totaled 1.67 billion euros ($1.96 billion) in the first half, less than the 2.32 billion euros analysts expected. Chief Financial Officer Jean-Jacques Guiony said LVMH slashed operating costs by 29% in the second quarter, compared with a 2% cut in the previous three months.
The company reacted "swiftly to the adverse situation,” Guiony said on a call with analysts. "We expect to keep the cost base under control.”
Tiffany Contract
Guiony said in an interview with Le Figaro that LVMH still expects to respect the contract signed for its planned purchase of jeweler Tiffany & Co.
"Tiffany’s results are clearly affected by the crisis,” the CFO told Le Figaro. "That said, we have signed a contract and we will respect it.”
Guiony told analysts on the call that LVMH is still waiting for about half a dozen antitrust approvals for the Tiffany deal, adding that "things are moving forward.”
Shares of Tiffany rose 2.3% in New York.
Sales at LVMH’s fashion and leather goods unit, which includes top brand Louis Vuitton, fell 37% in the quarter. Analysts expected a 38% decline. Louis Vuitton management increased prices for the brand’s iconic bags by 5% across all major markets in May.
While shoppers are increasingly turning to online purchases, the luxury industry has notoriously been slow to generate more revenue that way. LVMH noted a "significant acceleration” in online sales in the first half, which only partially offset the effects of store closures.
LVMH shares have dropped 3.1% this year.
