Mixed bags

Vuitton revamp helps LVMH face Asian gloom

Focusing on its own bags is doing LVMH some good. Shedding its controversial stake in high-end rival Hermes last year boosted the French luxury and drinks conglomerate's bottom line. Meanwhile the revamp of its own Louis Vuitton brand, three years in the making, is producing results at last. Bernard Arnault, LVMH's dominant shareholder, chairman and chief executive officer, had some reasons to smile after investors saluted its 2014 performance by sending the share price up more than 5 per cent to historical highs.

Strip away the euro 2.8-billion capital gain from the December 17 Hermes share distribution, though, and the group's performance looks less rosy. LVMH's profit from recurring operations fell 5 per cent last year compared with 2013.
 
Asia remains a problem. The hangover from China's corruption crackdown hit cognac volumes. Group sales in the region saw a 6 per cent drop in the fourth quarter. While the luxury market has slowed significantly in Asia, other groups such as Burberry and Jimmy Choo managed to maintain "robust" growth.

But at least LVMH can show some results from the renaissance of Louis Vuitton, the brand that accounts for half of group profit. The launch of high-end, all-leather handbags such as the euro 3,500-Capucine is helping to change widespread perceptions that the label has become overexposed. Attempts of perennial rival Kering to overhaul its own Gucci star label have been less successful so far.

While China has been the main focus of luxury groups in recent years, momentum in the sector has swung back west of late. Sales growth in the US was up 13 per cent in the last quarter. According to the Boston Consulting Group, America has a third of the world's high-net-worth individuals, but consumes less than a fifth of global luxury goods - suggesting room for growth.

There are other bright spots in the LVMH portfolio. Cosmetics chain Sephora, cashmere goods maker Loro Piana and Christian Dior perfumes all performed well. And with branded jewellery poised to become one of the strongest categories in the luxury sector, the group's euro 3.7-billion acquisition of Bulgari back in 2011 looks prescient. Reasons enough to look at the year ahead with some confidence.