Paris—LVMH, the world’s largest luxurygoods conglomerate, reported Monday that its first quarter sales rose 6% in line with analysts estimates, but revenue at its fashion and leathergoods division slowed to its weakest rate since 2009.
Total first quarter sales at LVMH rose to 6.95 billion euros (about $9.1 billion) as analysts’ average estimate expected. Excluding currency fluctuations and acquisitions, sales were up 7% compared to a 14% increase in first quarter last year.
The 17% organic growth at the company’s selective retailing unit, which includes Sephora and DFS duty-free, helped offset weaker-than-expected growth at other divisions, namely fashion and leathergoods, which include Louis Vuitton, Celine, Fendi etc.
The deceleration in the fashion and leathergoods business, while not unexpected, was more pronounced than expected: sales rose only 0.4% to 2.38 billion. Excluding currency shifts, sales rose 3%. That’s below the 5% growth analysts expected and much below the 9% increase from the same quarter a year ago. In fact, its was LVMH’s weakest growth in its fashion division since fourth quarter 2009.
At Louis Vuitton, the company’s flagship brand, there’s a move underway to focus more on the very high-end of the luxury market and limited store openings and emphasize leathergoods, according to what Bernard Arnault, chairman, said earlier this year.
However, some analysts believe that strategy will be a difficult one. “Taking the Louis Vuitton brand further upmarket is neither going to be painless nor immediate,” said Luca Solca, analyst for Exane BNP Paribas. LVMH “depends on aspirational demand and new consumers. In the past 12 months, austerity has depressed domestic aspirational demand in Europe, and a lull in Chinese growth has slowed the rate at which new luxury consumers are minted. Hence LV’s lackluster performance relative to the recent past.”
Jewelry, Watch Sales Down 1%
“A disappointing start to the year” is how Eva Quiroga, analyst at UBS AG, described LVMH’s first quarter where the most profitable division disappointed the most.
In LVMH’s official assessment of the quarter, the company stated: “Louis Vuitton relies on its incomparable know-how to further strengthen its product lines in order to offer its clients the highest quality and best service. Fendi benefited from continued developments in fur and leather and pursues its program of enlarging its store network. Céline made excellent progress in its own stores. The other brands continued to develop well.”
In LVMH’s jewelry and watch division, sales were down 1% reflecting “prudent buying by multi-brand retailers,” the company said. “TAG Heuer’s first quarter was marked by the 50th anniversary of its Carrera line and the new partnership with McLaren which was announced at the Geneva Motor Show. Hublot and Zenith also had a good start to the year. In jewelry, Bulgari confirmed the success of its Serpenti line and recorded strong revenue growth in its own stores.”
Sales in its wines and spirits division rose 7% on an organic basis thanks to robust demand for champagne in Asia that offset the European market. Perfume and cosmetics were up 5%.
“In an economic environment which remains uncertain in Europe, LVMH will continue to focus its efforts on developing its brands,” the world’s largest luxury goods company said in the statement, which was released after markets closed. It will also “maintain a strict control over costs,” it said.