French luxury group LVMH on Tuesday posted forecast-beating fashion and leather sales growth in the second quarter, helped by solid demand in the United States and improved trading in Asia, excluding Japan. Second-quarter sales at LVMH's all-important fashion and leather goods division were up 1 percent on a like-for-like basis, better than the flat to slightly downward trend expected by analysts and the zero growth seen in the first quarter.
However, the unit's profit from recurring operations fell 2 percent in the first half and LVMH's total underlying profit growth remained flat on the back of a 3 percent rise in first-half revenue, broadly in line with forecasts.
LVMH Chief Financial Officer Jean-Jacques Guiony said demand growth for Louis Vuitton was "very positive in the United States" and had improved in China but it was slightly negative in Europe and in "lower single digit terms" in Japan. He added that profitability at Louis Vuitton, the biggest contributor to group earnings, remained similar in the first half when compared to the same period last year.
Guiony further said it was difficult to quantify what impact on sales the September launch of Louis Vuitton's first ever perfume would have. It would only be sold at 350-400 of the brand's stores while comparatively, Chanel and Dior perfumes retailed at 40 to 50 times more shops globally, he said.
The luxury goods industry leader on Monday said it had agreed to sell the parent company of its loss-making fashion DKNY brand to U.S. clothing group G-III Apparel for $650 million after discontinuing its up-market sister brand Donna Karan in the past year. Guiony said the DKNY disposal did not mean that other underperforming brands such as Marc Jacobs would be sold. "This is not an idea that has crossed our mind. We believe in the long-term potential of the brand and we are convinced we can create value at Marc Jacobs," he told analysts on a conference call.
LVMH, which controls 70 brands including Louis Vuitton, Dior and Hennessy cognac, said demand in France, where it made 10 percent of sales, had suffered from a significant decline in tourist traffic in the first half.
The luxury goods industry is going through its most severe correction in seven years, with annual sales growth down to low single digits or flattish levels, against double-digit growth four years ago. Several luxury groups and brands have seen their profitability hit by the luxury goods downturn, including Burberry, Cartier owner Richemont, and Swatch, which issued a profit warning earlier this month.
Valuations in the luxury sector are down more than 20 percent since their peak in 2013.
(Reporting by Astrid Wendlandt, editing by Dominique Vidalon, Jane Merriman and Adrian Croft)