Vuitton owner LVMH posts rise in first half profits

France’s LVMH, home to fashion label Louis Vuitton and champagne maker Ruinart, on Tuesday posted a 28% year-on-year rise in underlying profit in the first half of 2018 as Chinese demand for luxury goods shows little sign of abating.

Bernard Arnault, Chairman and CEO of LVMH, commented: "The excellent results of the first half of the year attest to the strong desirability of our brands and the effectiveness of our strategy. The performance of the first half is even more remarkable given the unfavorable currency environment. The standards of quality and creativity required from our Maisons, which combine both modernity and tradition, are key to LVMH's success."

The results ease fears of waning demand in the luxury industry’s key growth market. A brewing trade spat between Washington and Beijing, which hit stocks and the yuan, has raised concerns of a trickle-down effect on China’s economy and on luxury purchases even though tit-for-tat tariff hikes have not directly hit the sector.

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But Chinese consumers’ appetite for branded goods appears to have largely weathered the dispute so far, in an encouraging sign for LVMH and rivals like Paris-based conglomerate Kering, owner of Gucci.

At LVMH’s powerhouse Louis Vuitton - which ranks alongside independent label Chanel as one of the world’s top luxury labels by sales - Chinese demand was even slightly stronger in the second quarter compared with the first three months of the year, Financial Director Jean-Jacques Guiony said.

“The threats… are there but I don’t think they have materialised yet in any way,” Guiony told a conference call with analysts, referring to currency volatility and the fallout from trade tensions.

Guiony sounded a note of caution for the remainder of 2018, however, when comparison bases for earnings will be tougher and underlying trends - as well as the context on trade tariffs - could change.

And across the group as a whole, revenue growth in Asia excluding Japan dropped to 15% in the second quarter on a like-for-like basis, which strips out currency swings, from 21% in the first quarter.

“Although the luxury industry is not on the frontline on this, such a risk would certainly bear some negative consequences for us,” Guiony said of tariff hikes.

France’s Hermes last week said Chinese demand had remained solid, a trend also noted by British trench coat maker Burberry.

STRONG LABELS

LVMH, which also owns fashion labels like Fendi and Krug champagne, saw strong performance across most divisions.

The group’s profit from recurring operations rose 28% in the first six months of 2018 to €4.65 billion ($5.43 billion), beating expectations.

Excluding accounting effects linked to the integration of German luggage maker Rimowa, like-for-like sales growth in LVMH’s key fashion and leather goods unit would have accelerated to 17% between April and June from 16 a quarter earlier, Guiony said.

The unit is also home to labels like Givenchy, the couture house behind the wedding dress Meghan Markle wore for her marriage to Britain’s Prince Harry in May.

One sore spot was LVMH’s wine and spirits division. Like-for-like sales growth in the division weakened to 3% in the second quarter from 10% in the first. The company said its Hennessy cognac sales by volume dropped in China in the period, as its distributors worked through stocks accumulated in the first quarter for Chinese New Year.