LVMH, Kering point to second-quarter uptick in luxury sales

PARIS Thu Jul 25, 2013 3:34pm EDT

PARIS (Reuters) - French luxury groups LVMH (LVMH.PA) and Kering (PRTP.PA) on Thursday reported a pick-up in second-quarter sales, partly due to improved demand in Europe and solid growth in Japan.

Kering said Europe enjoyed a "rebound" in the second quarter, driven by stronger local and tourist demand and pointed to buoyant business in Japan, where shoppers spent their money at home, partly because of the weak yen.

Luxury industry leader LVMH said in a statement it "continued to grow in Europe" and enjoyed "sustained momentum in Asia."

Demand for luxury goods has been patchy since the beginning of the year, with a continued slowdown in China, the industry's main engine of growth, particularly hitting watch sales, while tourist flows declined in Europe in the first quarter.

For some brands, sales to tourists in Europe can account for up to 60 percent of total sales, particularly in watches and jewelry and local consumption in Europe has been depressed over concerns about higher taxes and rising unemployment.

Kering Finance Director Jean-Marc Duplaix told journalists in a conference call that demand in China remained at levels "lower than what we have seen in the past."

As a case in point, Kering's Gucci sales in Europe rose a higher-than-expected 10 percent in the second quarter and were up 6 percent in Japan but fell 4 percent in China.

Duplaix also said that Kering was still in talks with potential buyers of its mail order business La Redoute but stressed that "there would be nothing new (about a potential deal) this summer."

Kering changed its name from PPR last month to mark its transformation from a retailer to a sports and luxury group that today owns sports brand Puma as well as a string of fashion brands such as Balenciaga and Stella McCartney.

Kering's luxury sales in the three months to June 30 were up 9.4 percent on a like-for-like basis, compared with a rise of 6.4 percent in the previous three months.

Kering's fashion brands Alexander McQueen and Bottega Veneta were behind the bulk of the growth, as sales growth at Gucci, the group's biggest fashion brand, remained steady at a little over 4 percent on a comparative basis.

"Even if the Gucci brand shares some of the issues faced by Louis Vuitton around ‘ubiquity', its margin momentum is superior, and at the group level, Kering's performance is boosted by brands like Bottega Veneta, YSL, which are big enough (they account for 43 percent of total luxury sales) to act as growth boosters," HSBC analyst Antoine Belge said in a note.

Kering posted a first-half operating profit of 842.7 million euros, beating expectations of 808 million euros.

REVERSING DECLINE

LVMH did not publish separate second-quarter figures but also reported improving business trends, particularly at its fashion and leather goods and perfume and cosmetics units.

Fashion and leather, LVMH's biggest division as it includes the world's No.1 luxury brand Louis Vuitton, saw revenue in the first half reach 5 percent on a like-for-like basis, up from 3 percent in the first quarter.

"It is interesting to see that LVMH's fashion and leather division has reversed its decline in sales," said Mario Ortelli, analyst at Bernstein.

Revenue growth from the fashion and leather division, which was 10 percent in the first half last year on a like-for-like basis, has been declining ever since and reached its lowest level since 2009 in the first quarter of this year.

Analysts are worried that Louis Vuitton, which accounts for nearly half of LVMH's operating profit and three-quarters of fashion and leather revenue, has grown so big that there is little growth left ahead.

There are also worries that consumers, particularly in major markets such as China, are growing jaded with logo-branded products and opting instead for more exclusive niche brands.

Operating margin at LVMH's fashion and leather unit deteriorated in the first half to 31.8 percent, against 32.5 percent last year.

LVMH is expected to provide more details on its second-quarter performance during a conference call with analysts on Friday at 0730 GMT.

Overall, LVMH made a profit from recurring operations of 2.71 billion euros, slightly below the Thomson Reuters I/B/E/S average estimate of 2.75 billion euros.

Kering and LVMH's performance remain below that of Hermes in terms of sales growth as the French maker of Birkin and Kelly handbags saw sales at constant currencies rise 16 percent in the second quarter and 14.4 percent overall in the first half.

Last week, Hermes, Europe's third-largest luxury group in terms of market capitalization after LVMH and Richemont (CFR.VX), also raised its full-year targets after beating quarterly forecasts.

(Reporting by Astrid Wendlandt; Editing by Geert De Clercq, Gary Hill)