LVMH Moët Hennessy - Louis Vuitton Société Européenne on Jan. 26 reported better-than-expected EPS for full-year 2020, boosted by demand for its Louis Vuitton and Christian Dior brands in the fourth quarter, and expressed "cautious confidence" for its sales and profit outlook in 2021.
The world's largest luxury group said full-year net profit was €4.70 billion, or diluted EPS of €9.32, down from €7.17 billion, or diluted EPS of €14.23 in 2019. Analysts had expected normalized EPS of €8.64, according to consensus estimates compiled by S&P Capital IQ. Revenue fell 17% to €44.65 billion from €53.67 billion, just below the consensus estimate of €44.96 billion.
"In a context that remains uncertain, even with the hope of vaccination giving us a glimpse of an end to the pandemic, we are confident LVMH is in an excellent position for which the world wishes in 2021 and to further strengthen our lead in the global luxury market," said Bernard Arnault, chairman and CEO, in a statement. The results were released after the close of the Paris stock exchange.
Organic revenue fell 16% but the decline in the fourth quarter was only 3%. The year's results were buoyed by double-digit growth at Louis Vuitton and Christian Dior in both the third and fourth quarters. Profit from recurring operations across all business groups fell 28% to €8.31 billion from the €11.50 billion reported in 2019.
"Two points [are] worthy of note," said CFO Jean Jacques Guiony on a call with analysts. "One is a strong rebound in organic revenue in the second half from a decline of 28% in the first half to only a 5% decline in the second, with all business groups contributing. And two, the increased negative currency impact in the second half from 1% to 3%."
LVMH's largest group, fashion and leather goods, saw full-year reported revenue decline 5%, while perfume and cosmetics revenue fell 23%. Revenue dropped 24% in the watches and jewelry division and fell 15% in the wines and spirits business. Selective retailing revenue dropped 31% to €10.16 billion.
Asia excluding Japan accounted for 34% of revenue, up from 30% in 2019. Sales from Europe excluding France fell to 16% of revenue from 19% while the U.S. retained its 24% share.
LVMH said it had managed to cut costs in order to improve its profit performance. "Marketing and selling expenses are down 16% in organic terms, while administration [costs are] down 5%," said Guiony. "Overall, operating costs decreased 14% on a constant currency basis, reflecting the group's effort to contain costs in an adverse environment."
In addition to navigating store closures, the shutdown in international air travel and lockdowns brought on by the COVID-19 pandemic, for LVMH the year was also marked by the purchase of U.S. jeweler Tiffany & Co. In February and April 2020, LVMH completed eight bond issues totaling €10.7 billion mainly to finance the acquisition, which was completed on Jan. 7, 2021. LVMH's current net debt stands at €4.2 billion, about €2 billion below the 2019 level. Debt related to the Tiffany acquisition is not included in the latest figure.
Absorbing Tiffany into LVMH's stable of other jewelry business will likely occupy LVMH executives for many months to come. And it may prove to be more bumpy than the French company's successful 2011 acquisition and integration of another big-brand jeweler, Bulgari.
"When we bought [Bulgari], it had a very strong product pipeline and a lot of mistakes in marketing and distribution," said Guiony. "So it was somewhat a fairly ideal situation because we could introduce new products fairly quickly. And at the same time, we fixed the marketing and distribution issues reasonably quickly as well. And this, with the help of a strong demand, enabled us to really get a strong increase in business."
In terms of integrating Tiffany, "it's a bit too early to say, frankly," Guiony added. "We need probably three good months to really assess the situation there and really to identify the key challenges ... And we'll assess its action plan on that basis. So, it's hard for me to say whether things will take a different direction from Bulgari."
LVMH said it would propose a dividend of €6 per share. An interim dividend of €2 per share was paid Dec. 3, 2020, and the balance will be paid April 22.
