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LVMH, Kering, Hermès... Profits soar for luxury giants

Results displayed by major groups of the luxury sector comfortably exceed forecasts for the year's first semester.

The future of the luxury sector seems bright again. Two days after LVMH —which saw its net profit soar by 41% over the first six months of this year— crossed the 3 billion euros mark, Kering unveiled, on Thursday July 26th, its own record results. The group, which owns the Gucci brand among others, registered a 55% jump in net profit over the same period, reaching a total of 1.26 billion euros.

Both French luxury conglomerates have enjoyed favorable winds since last year: after suffering anti-corruption measures in China and terrorist threats to tourist activity in Europe, the markets of luxury handbags, perfumes and ready-to-wear have once again regained their yesteryear dynamism.

Bernard Arnault LVMH Bernard Arnault, CEO of LVMH

"After a stagnation in sales during the year of 2016, the market grew healthier in 2017", Bain & Company published in its annual study on June 7. "The year of 2018 is on to an excellent start," adds the firm, which is forecasting a growth rate of 6% to 8% at constant exchange rates throughout the year.

Clearly, the two leaders of the sector have been outperforming these forecasts. Growth in LVMH's turnover reached 10% over the first six months of 2018, to 21.75 billion euros. Kering's turnover has been even better: it increased by 34% in the same period to 6.4 billion euros. Hermès also displays a healthy glow. The Parisian luxury house generated 2.85 billion euros in turnover in the first half of the year. The label recorded a progression of 11% at constant exchange rates compared to its previous year.

Hermès Store Asian Tourists

A new-found appetite in Asian consumers

French luxury groups have benefited from a renewed appetite in Asian consumers. In Asia, where it operates nearly 1,200 stores, LVMH has seen its sales grow by as much as 31% (excluding Japan). The group's outlook in China, where luxury item sales are expected to grow between "20% to 22%" in 2018 according to Bain & Company, remains at the center of attention.

The group, presided by François-Henri Pinault, is riding high on the wave of Gucci's success. Since appointing Alessandro Michele as its creative director in 2015, the Italian brand has managed to seduce a new, younger audience. And it shows: sales soared by 44% —to 3.8 billion euros— in the first half of 2018. Among the most fervent supporters of the brand's Baroque style are Asian consumers. Saint Laurent, whose sales grew by almost 20% in the first six months of the year, also has a strong Asian audience. The continent "pursues its remarkable performance", observes Hermès, which estimates its sales activity growth to +15% (outside of Japan).

But handbags and ready-to-wear manufacturers are not the only beneficiaries of the luxury market's recent rebound: L'Oréal, a world leader in cosmetic products, has revealed very flattering performances. The French group, which oversees the Lancôme, YSL and Armani lines, saw its sales increase by 13.5% in its luxury division. Its net profit is up 11.7%. The group, presided by Jean-Paul Agon, believes it will generate new record profitability in 2018.

L'Oréal

However, some shadows tarnish the picture. Despite the sector's overall good health, a few luxury brands are still struggling: most notably Salvatore Ferragamo, Prada and Burberry. The volatility of the yuan could complicate the revival of these fashion icons.

"Despite a dynamic global demand, monetary and geopolitical uncertainties remain", Bernard Arnault, CEO of the LVMH group, observed by way of communiqué.
Financial analysts also question the strength of consumption in China and the evolution of the stock market in Shanghai. The country now accounts for nearly 40% of the world's sales of luxury products.

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