France’s LVMH returned its biggest business to double-digit sales growth in the third quarter, as strong demand for Louis Vuitton and Dior helped offset steep declines elsewhere caused by the coronavirus pandemic.
The world’s biggest luxury goods maker delivered 12 per cent comparable revenue growth at its fashion and leather goods unit to reach €5.9bn, far better than the 1 per cent decline expected by analysts.
But weakness in sales of duty-free retail, cosmetics, and watches and jewellery still meant on a comparable basis the group’s overall revenue contracted by 7 per cent in the third quarter to €11.96bn. Analysts had predicted a 10 per cent decline.
The luxury goods sector is grappling with its worst downturn in decades as the pandemic prompts wealthy consumers to delay purchases and hampers usually free-spending Chinese tourists from travelling to Europe. Analysts have predicted that sales will fall by as much as 30 per cent this year and take up to three years to recover.
For LVMH and its competitors Kering and Richemont, the coronavirus has also strained supply chains, forced them to experiment more with online sales and cast doubt on the usefulness of the rituals of doing dozens of fashion shows a year.
Nevertheless, valuations for the luxury sector have remained surprisingly resilient. It currently trades at a 96 per cent premium to MSCI Europe Index, according to UBS, compared to a usual 48 per cent long-term average.
LVMH, which is embroiled in a legal dispute over its planned acquisition of US jeweller Tiffany, has managed to withstand the pandemic better than some of its smaller rivals. Its shares are down 3 per cent this year, compared to a 5 per cent drop for Kering and 20 per cent fall for Richemont.
Controlled by billionaire Bernard Arnault, the group said there had been a “considerable improvement” in the third quarter, but cautioned that continued uncertainty over Covid-19 meant it would remain vigilant on cost-cutting and investments.
“The encouraging signs of recovery observed in June for several of the group’s activities were confirmed in the third quarter in all regions, notably in the United States, and in Asia, which once again grew over the period,” it said in a statement.
In the first nine months, LVMH’s revenue declined by 21 per cent on a comparable basis to €30.3bn.
LVMH’s planned acquisition of Tiffany hit the rocks last month after the French group said it could no longer complete the deal, citing among other things the jeweller’s “dismal” performance and mismanagement during the pandemic.
The two companies are suing each other in Delaware court as Tiffany fights to force LVMH to honour the deal. A trial is scheduled to start on January 5.