What Recent Results Suggest for Luxury in 2013

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Photo Courtesy of Gucci
Luxury Society investigates recent results announcements by LVMH, Richemont, Hermès, Swatch Group, De Beers & PPR, to see what they imply for the industry in 2013

LVMH Moët Hennessy Louis Vuitton recently reported recorded revenue of €28.1 billion in 2012, an increase of 19% compared to 2011. This includes the integration of Bulgari as of June 30, 2011. Organic revenue growth was 9%.

Louis Vuitton was again a star performer, recording double-digit revenue growth during the year, despite talks of a slowdown. The Fashion & Leather Goods category overall lead turnover, accounting for €9.9 billion of the reported €28.1. All business groups reportedly saw excellent momentum in Europe, Asia and the United States, whilst Selective Retailing grew at the fastest organic rate of 14% (LVMH).

Hermès posted a 16.4% rise in 2012 sales at constant exchange rates, beating its own November forecast, with revenues of €3.48 billion. In the fourth quarter alone, sales came in at €1.04 billion, driven by 30% growth in Asia (excluding Japan).

The French leather goods house expects its 2012 operating margin to be “slightly above the all-time high achieved in 2011”. The margin reached 31.2 percent of sales in 2011 (Reuters).

Richemont has revealed sales over the nine-month period to December 2012 of €7,968m, up 9 % at constant exchange rates or 17 % at actual rates. The weakening of the euro against the dollar, in particular, had a positive impact on the Group’s reported sales. The Group’s net cash position at 31 December 2012 amounted to some € 3.0 billion (Richemont).

Third quarter performance was driven by robust jewellery sales and continued retail channel momentum. This was offset by a relatively weak wholesale channel, reflecting a cautious approach by the Group’s retail partners in the watch business.

Following several years of exceptional growth in the Asia Pacific region, in particular China, sales were flat compared to the demanding comparative figures for the same quarter last year, according to the group.

PPR reported annual consolidated revenue of €9.74 billion, up 20.8% on 2011 and 10.6% on a comparable Group structure and exchange rate basis. Chairman François-Henri Pinault attributed the result to the exceptional performances of all brands in the Luxury Division (PPR).

In 2013, PPR will add Christopher Kane to its balance sheet, following the acquisition of a 51% stake in January 2013. This year also marks the debut of Alexander Wang as creative director of Balenciaga, and the first full year of Saint Laurent Paris under the direction of Hedi Slimane.

In 2012, the Swatch Group exceeded its eight-billion-franc target for gross sales, increasing by 14.0% to CHF 8,143 million (roughly €6.6 billion), one billion more than in 2011. Foreign currencies stabilized somewhat against the Swiss franc but remain significantly weaker than two years ago.

The Swatch Group continues to have substantial potential for 2013, thanks also to the integration of Harry Winston to the brand portfolio. The group believes there is a realistic prospect of long-term growth in the Swiss watch industry of five to ten percent per year in 2013, and will focus on producing innovative and high-quality Swiss products in every segment (Swatch Group).

De Beers announced a drop in full year group sales of 16% to $6.1 billion over the previous year. The macroeconomic uncertainty that triggered difficult trading conditions in the fourth quarter of 2011 continued, as expected, into 2012. Demand for diamond jewellery in the key markets of the US, China and Japan grew, albeit at a slower pace than in 2011.

Rough diamond sales fell 15% to $5.5 billion, from $6.5 billion in the January to December 31, 2011 period. De Beers expects moderate growth in diamond jewellery demand in 2013. This will be supported primarily by a more positive picture emerging from China and India compared to 2012. (De Beers).

Though Richemont are yet to report full annual results, collective numbers for 2012 paint a far more positive picture than what was perhaps expected over the last twelve months. Comparable growth rates hovered around 9% at the lowest (LVMH, Richemont), flying as high as 16.4% in the case of Hermès. Certainly not growth rates to be baulked at when talking sales in the billions of euros.

Official statements by CEOs suggest another positive yet cautious attitude towards 2013. PPR will continue to focus on divesting non-core assets and improving the performance of the Lifestyle division, led by Puma.

Explained chairman François-Henri Pinault; "We are confident that the strengthening of our assets and the determination of our teams will allow us to continue significantly improving our operating and financial performances in 2013.”

Despite an uncertain economic environment in Europe, LVMH believes that it is well equipped to continue growth momentum across all business groups in 2013. The Group will maintain a strategy focused on developing its brands by continuing to build up its savoir-faire, as well as through strong innovation and expansion in fast growing markets.

All signs point to more moderate growth and more moderate expectations in 2013. There has been much M&A activity in the past few years, and now is the time for conglomerates to put those acquisitions to work. Christopher Kane or Brioni at PPR, Bulgari at LVMH, Harry Winston at Swatch Group, all groups seem focused on streamlining business activities, leveraging core competencies and moving into the next year with realistic expectations.

Sophie Doran

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