LVMH signals investment ‘selectivity’ as Tiffany court battle looms

Bernard Arnault’s luxury goods empire reported better than expected revenues in the third financial quarter thanks to its Champagne and spirits sales. Just as well, considering a costly court battle with US jeweller Tiffany is on the horizon.

Spare a thought for Bernard Arnault, the head of Louis Vuitton Moet Hennessy, and the richest man in Europe.

At Christmas he was celebrating a bumper year as the luxury goods group, including the top end wines and spirits division, reported record revenues of €53.7 billion in 2019, up 15%, with organic revenue growth at 10%.

Then coronavirus struck, demand for luxury goods plummeted, especially in the Far East and travel retail sectors, and by May Bloomberg calculated that Arnault’s wealth had slumped from $110 billion in 2019 to $77m, the biggest fall caused by the pandemic among the world’s super rich.

The first six months of this year were particularly difficult and LVMH even postponed setting an interim dividend for shareholders – that will be fixed later this month. And the company also failed to pay Diageo a full-year £166m dividend the British group claims it is owed for its stake in Moet Hennessy. That is going through a disputes procedure.

But LVMH has surprised analysts with comparatively buoyant figures for the third quarter of this year. Overall organic revenues fell by 21% in the first nine months but from July to September they were just 7% down compared with the same period last year.

The wines and spirits division, which includes Hennessy cognac, the Moet et Chandon champagne empire, châteaux Cheval Blanc and Yquem, and Glenmorangie scotch, was notably resilient. Whereas organic sales grew by 7% in the third quarter of last year, they fell by just 3% in the same period of 2020, bringing the overall sales decline for the year to date to 15%. Analysts had expected worse.

After a significant drop in the first six months, Champagne sales recovered strongly between July and September while Hennessy cognac fared better than hoped for in the United States, driven by an “exceptional stimulus” for consumer demand. The VS range did notably well.

LVMH said the “encouraging signs” of recovery it noted in June were confirmed in the third quarter in all regions, notably the United States and in Asia. And the shares reacted positively. From a low of €279 at the height of the first wave of the pandemic they now stand at about €430, just €7 below their record high of autumn 2019.

But don’t expect Arnault to be breaking out the Dom Perignon to celebrate his wealth again topping the $100m mark just yet.

LVMH says the outlook is “very turbulent”, marked by continuing economic and health uncertainties and that it will “continue to exercise caution, strengthen its cost controls and selectivity in its investments”.

That final phrase may well refer to a black cloud hovering over Arnault and the group.

At the end of 2019 Arnault was looking chipper as he sealed an agreement to take over the US jeweller Tiffany & Co for $16.2bn. But he now claims he is unable to complete the purchase until early January, way beyond the contractual date of November 24.
Most observers think he is suffering buyer’s remorse at the prospect of overpaying and wants a lower price – or even to ditch the deal altogether and then buy luxury goods rival Richemont.

Arnault claims his hands are tied by a French government request not to complete the Tiffany deal before January 5 at the earliest. The motive is said to be to help Paris put pressure on Washington to settle the ongoing trade war over subsidies to Airbus and Boeing. There have even been claims (denied by LVMH) that he requested the instruction from the Macron administration.

Tiffany has vehemently rejected Arnault’s claims of mismanagement and poor performance during the pandemic, saying the French billionaire is using “every means and opportunity at his disposal to ensure that LVMH pays the lowest possible price for the assets he desires.”

It is asking a Delaware court to force LVMH to complete the deal at the agreed price. LVMH is counter-suing to ditch the takeover. The courtroom battle begins on 5 January.