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Asia's love for Louis Vuitton bags is helping LVMH stay strong

With travel abroad virtually impossible, consumers are spending big bucks on the luxury brand's iconic bag collection

FILE PHOTO: People queue in front of a Louis Vuitton store, as the spread of the coronavirus disease (COVID-19) continues, at the Bahnhofstrasse shopping street in Zurich, Switzerland November 28, 2020. REUTERS/Arnd Wiegmann/File Photo GLOBAL BUSINESS WEEK AHEAD (REUTERS)

LVMH weathered a new round of Covid-19 lockdowns thanks to the resilient appeal of its Louis Vuitton bags.

Sales of fashion and leather goods soared 18% on an organic basis in the fourth quarter, the luxury conglomerate has said. Analysts had expected growth of 11%.

Demand from Chinese consumers, who have been spending at home with travel abroad virtually impossible, has helped LVMH withstand the effects of the pandemic. Revenue in Asia and Japan respectively rose 21% and 5% in period, while Europe lagged behind with a drop of almost a quarter.

Overall, organic revenue at LVMH fell 3% to 14.3 billion euros in the fourth quarter, an improvement from the past three quarters, signaling that the dominant luxury conglomerate is on a steady recovery.

“The strong beat should get LVMH share price home and dry,” Sanford C. Bernstein analysts led by Luca Solca said in a note.

Full-year profit from recurring operations was 8.3 billion euros ($10.1 billion). Analysts expected 7.2 billion euros.

At Louis Vuitton, the company’s cash cow, LVMH was able to put cost controls in place that limited profit’s decline to 2%. Performance at was also helped by price increases.

“After several years of flat prices, I think 2020 was the year to do that,” LVMH Chief Financial Officer Jean-Jacques Guiony said during an analyst call.

Meanwhile, Christian Dior gained market share last year and the label benefited from the successful launch of the Bobby handbag. Christian Dior got exposure in July after staging a fashion show in Lecce, Italy, financial communications chief Chris Hollis said on a call.

LVMH joins Richemont and Burberry Group Plc in reporting upbeat performances in the last three months of 2020. But analysts at UBS led by Zuzanna Pusz said in a note on 20 January that the recent virus flare-up in China could weigh on luxury stocks in the short-term.

While there are “risks” regarding the virus situation in China, the country “has proven quite in control over the last few quarters,” Guiony said. “It’s not the place where I would assign the largest lockdown risks.”

Luxury companies have been facing the challenge of intermittent retail shutdowns since October in many European countries. Lockdowns are particularly disruptive for the industry since it still sells the bulk of its products in stores, where sales teams cater closely to customers’ needs, an experience that’s not as easy to replicate online.

Online Share

LVMH didn’t disclose the share of its online sales last year, as that rate isn’t sustainable if the pandemic gets under control and shoppers return to physical stores, Guiony added. That share was 9% in 2019. He also said there’s no reason to believe tourism --in Europe notably-- will disappear forever.

“We see no particular reason why we should be shutting down stores particularly in Europe,” Guiony said. “We think we can recover the lost business with tourists coming back and developing the local client base.”

LVMH’s selective retail unit, which includes Sephora and DFS, was the hardest hit last year amid a halt in international travel. That unit swung to a loss of 203 million euros for the year. Guiony warned returning that business to its pre-pandemic levels will take time.

The biggest luxury conglomerate has become even larger recently. Earlier this month, LVMH completed a deal to buy Tiffany & Co. Alexandre Arnault, son of LVMH billionaire founder Bernard Arnault, is now helping Chief Executive Officer Anthony Ledru run the American jeweler.

The company plans to take about three months to dive into Tiffany’s business model and get a clearer picture of the problems it’s facing, Guiony said. The conglomerate seeks to improve its margin in the future, he said, without giving specific targets.

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