Sales at LVMH, the owner of luxury brand Louis Vuitton, have experienced a significant decline of 17% in the first quarter of 2020 as a result of the coronavirus pandemic. The company had to close its stores and production sites in key markets due to government-imposed lockdown measures. Similar to its competitors such as Kering, the parent company of Gucci, LVMH faced temporary shop closures across China, Europe, and the United States.
LVMH, known as the world’s largest luxury goods group, had to halt production at its major facilities, including those in France where it manufactures its renowned Vuitton handbags. However, the company made the decision to repurpose some of its factories to produce face masks and hand sanitizers. Towards the end of March, LVMH warned that its first-quarter sales would experience a decline of 10% to 20% compared to the previous year.
For the January to March period, the company reported a revenue of €10.6 billion ($11.5 billion), representing a 15% decrease on a reported basis. When considering a like-for-like basis, which excludes foreign exchange fluctuations and acquisitions, sales dropped by 17%. Nevertheless, LVMH’s fashion and leather goods division, which includes renowned brands such as Christian Dior, performed slightly better than expected with a 10% decline on a like-for-like basis compared to the same period last year.
LVMH also observed a surge in online sales and remains hopeful for a broad recovery to commence in May or June. Despite the challenges posed by the current global crisis, Chairman and CEO Bernard Arnault expressed gratitude for the resilience of the company’s brands and the dedication shown by its employees.
In order to mitigate the financial impact of the pandemic, LVMH implemented cost controls. It was announced that Arnault, one of France’s wealthiest individuals, would forego his full pay in April and May and renounce his variable remuneration for the entire year. Other top executives, including Delphine Arnault who works at Louis Vuitton, have also made similar financial sacrifices. Additionally, the company plans to reduce its proposed dividend by 30% and implement stricter cost management measures.
Although business is gradually recovering in China, countries like Italy and France are expected to remain under lockdown until early May, with major economies worldwide facing a significant recession. Chinese consumers account for over a third of global luxury goods purchases, although a considerable number of them make their purchases during overseas trips. Consequently, analysts predict an even greater sales decline for luxury groups in the second quarter, with Bain consultancy firm estimating a drop in sales of 15% to 35% for the year.
Despite these challenges, LVMH is anticipated to fare better than its competitors due to its diversified business model and the strong performance of its Louis Vuitton and Dior brands. The company does expect a substantial impact on its second-quarter results, particularly in Europe and the United States, but it is unable to determine the exact extent without knowing when business operations will return to normal.
Chief Financial Officer Jean Jacques Guiony expressed confidence that the pandemic will not have a lasting impact on LVMH and emphasized the company’s efforts to control costs, including negotiating rent reductions. He also confirmed that the planned acquisition of U.S. jeweler Tiffany for $16 billion will proceed as scheduled, dismissing any speculation that LVMH might purchase Tiffany shares at a lower price. The completion of the deal is expected to occur later this year.