LVMH slumps as Louis Vuitton battles to regain allure

LVMH Moet Hennessy Louis Vuitton fell the most in more than two years yesterday after slowing fashion and leather-goods growth suggested that efforts to turn around its biggest brand have yet to take hold.

Revenue at LVMH’s fashion and leather-goods division rose 4% on an organic basis in the first nine months of this year, the company said on Tuesday, slowing from the first-half’s 5% gain and trailing the 6% estimate of analysts.

Vuitton, which Exane BNP Paribas estimates accounts for more than half of LVMH’s earnings, is slowing retail expansion, including more precious materials in its collections and adding products with fewer logos in an effort to appeal to the wealthiest shoppers.

Such initiatives would take “at least another 12 months” to produce tangible results, Allegra Perry, an analyst at Cantor Fitzgerald, said after the report.

Although the reaction of clients to Louis Vuitton’s new soft leatherproduct ranges is “very good, in terms of impact on global sales it’s not a major thing”, chief financial officer Jean-Jacques Guiony said. adding that the brand’s organic revenue growth was “slightly below” the fashion and leather-goods division’s 3% rate last quarter. The transition “is going to take some time”.

The stock dropped as much as 6.7% to ¤135.15. That decline was the steepest since September 22 2011, and wiped out the gains for 2013.

Louis Vuitton introduced bags such as the Capucine bag, which has been worn by actress Angelina Jolie, and the W, a combination of a canvas and calfskin leather purse that can sell for $4,000.

LVMH’s fashion and leathergoods growth “is very disappointing following significant excitement” around these bags when they were introduced, said Julian Easthope, an analyst at Barclays Capital.

The company, which published its sales numbers after markets closed on Tuesday, said it remained confident for this year, even in the face of an uncertain European economic climate. LVMH would continue to focus on innovation and geographic expansion in selected mar- kets. LVMH is boosting investment in some of its smaller fashion brands and buying stakes in others to help offset slowing growth at Vuitton, its biggest source of revenue. It is also shuffling Vuitton’s management, with Delphine Arnault joining as executive vice-president and artistic director Marc Jacobs leaving after 16 years to focus on his own label.

LVMH’s performance “seems to suggest growth is moderating to a new normal, which is weighing on the whole sector”, said Luca Solca, an analyst at Exane BNP Paribas.