DFS first-half revenues hit by troubled Macau and Hong Kong markets

By remaining vigilant, we face the second half of the year with confidence
Bernard Arnault
Chairman and CEO
LVMH

INTERNATIONAL. DFS Group continued to face difficult market conditions in Asia during the first half of 2016, parent company LVMH Moët Hennessy Louis Vuitton said today as it unveiled group results for the period (see full charts below).

LVMH does not break out the DFS performance from those of the wider Selective Retailing division (which also includes Starboard Cruise Services and domestic perfumery chain Sephora as well as Franck et Fils, La Grande Epicerie de Paris and Le Bon Marché Rive Gauche). But the group noted: “DFS continues to face challenges in Asia due to the difficult environment for tourism, particularly in Macau and Hong Kong.”

On a more positive note, it added: “Its geographic expansion continues with the opening of a new T Galleria in Siem Reap in Cambodia and another will open in the coming months in Venice, Italy.”

The first-half continues on from a troubled 2015 in Macau and Hong Kong for DFS. The Moodie Davitt Report’s Top 25 Travel Retailers 2015, published earlier today, noted of last year: “DFS profits took a buffeting in Macau and, especially, the hugely difficult Hong Kong market.

“What seemed an inspired bid and triumphant triple-contract coup at Hong Kong International Airport (HKIA) in 2012 has turned increasingly sour in the face of a change of conditions that surely no retailer nor industry analyst could have predicted. As a result, DFS has been racking up big losses in the face of a passenger-linked MAG and a plethora of negative factors.”

Of Macau we wrote: “Macau’s gambling revenue is the platform on which the retailer’s high-end travel retail is built. The key indicator fell for a second straight year as the corruption crackdown deterred high rollers from the gaming hub. With revenue down -34.3% to a five-year low (it fell just -2.6% in 2014), the knock-on effect to retail was severe.”

Selective Retailing recorded organic revenue growth of +5%. On a reported basis, revenue growth was +4% and profit from recurring operations decreased by -5%, driven largely by DFS’s struggles in two critical markets. Sephora continued to gain market share in all regions, recording double digit-growth in its revenue and profits. “Its performances were outstanding throughout the world,” the company said.

DFS Cambodia SC1155-768x719
DFS (and LVMH) are placing high hope on a diversification into “cultural retailing”, such as the recently opened T Galleria by DFS, Angkor in Siem Reap, Cambodia

DFS cambodia TGalleriaAngkor_Atrium1-768x522LVMH Moët Hennessy Louis Vuitton, the world’s leading luxury products group, recorded groupwide revenue of €17.2 billion in the first half of 2016, an increase of +3%. Organic revenue growth was +4% compared to the same period in 2015.

“The American market is dynamic, while Europe remains on track, with the exception of France, which has been affected by a decrease in tourism,” said LVMH. “Asia improved steadily during the period.”

Group profit from recurring operations was €2,959 million for the first half of 2016, consistent with the same period in 2015. Group share of net profit amounted to €1,711 million, an increase of +8%.

dfs_fondaco_0914_600_3
Not the type of gondola usually associated with a DFS store: The Fondaco dei Tedeschi on the Grand Canal in Venice was a home for commerce for 800 years – and will become one again with the store opening in September
dfs_fondaco_0914_600_2
T Fondaco dei Tedeschi enjoys a stunning location on Venice’s historic Grand Canal, right at the epicentre of the city’s tourist zone

LVMH Chairman and CEO Bernard Arnault commented: “LVMH’s results for the first half of 2016 reflect, more than ever, the strength of our business model, which allows us to continue to grow even during an unstable geopolitical environment and economic and monetary uncertainties.

“The diversity of our businesses, the entrepreneurial style of our brands and the agility of our organisation all contribute to the growth of the Group. By remaining vigilant, we face the second half of the year with confidence and count on the quality of our products and the talent of our teams to further strengthen our leadership in the world of high quality products in 2016.”

Highlights of the first half of 2016 included:
• Strong momentum in the United States, and continued growth in the European market;
• Excellent performance from Wines and Spirits in all regions;
• Success of iconic lines and new products at Louis Vuitton, where profitability remains at an “exceptional” level;
• Impressive growth of Fendi, which celebrates its 90th year;
• Continued investment in the fashion brands;
• Strong momentum at Parfums Christian Dior, led by successful innovations;
• Market share gains at Bvlgari and the successful refocusing of TAG Heuer on its core range;
• “Exceptional progress” at Sephora which is strengthening its position in all operating regions and in the digital universe;
• Cash from operations before changes in working capital of €3.7 billion, an increase of 8%
• Net debt to equity ratio of 20% as of the end of June 2016.
lvmh table 1

lvmh table 2

lvmh table 3 lvmh table 4

lvmh table 5

Summary of the other divisional performances

The Wines & Spirits business group recorded organic revenue growth of +9%. On a reported basis, revenue growth was +7% and profit from recurring operations increased by +17%. The Champagne business had a good start to the year, especially in Europe and the USA. The prestige vintages performed particularly well, LVMH said. Hennessy recorded strong growth in the American market and improved momentum in China following a 2015 which was marked by a period of destocking by distributors. Other spirits, Glenmorangie and Belvedere continue their development.

The Fashion & Leathergoods business group recorded stable revenue and profit from recurring operations, the group said. Louis Vuitton continued to illustrate its “creative momentum” across its collections. Leathergoods’ performance was based on both the continued development of its “iconic” models, as well as on the success of its more recent creations.

The presentation of the Cruise Collection in the Niterói Museum of Contemporary Art in Brazil was a highlight of the first half. Loro Piana opened a flagship store on Avenue Montaigne in Paris. Fendi recorded an “excellent” performance in the first half. Céline and Kenzo showed strong growth. Marc Jacobs continued the repositioning of its collections. Other brands are further strengthening their positions, LVMH said, confirming that an agreement was announced for the sale of the Donna Karan business.

The Perfumes & Cosmetics business group recorded organic revenue growth of +8%. On a reported basis, revenue growth was +5% and profit from recurring operations increased by +9%. Christian Dior gained market share in all regions, underscoring its strong performance, driven by the international success of Sauvage and the vitality of its perfumes J’adore and Miss Dior. Its new fragrance, Poison Girl, and its latest make-up creations also contributed to the “excellent” performance of the brand, LVMH said. Guerlain, strengthened by the success of its perfumes, introduced La Petite Robe Noire to the make-up market. Benefit’s new eyebrow collection [which is making rapid progress in travel retail -Ed] received an excellent reception, LVMH noted. Make Up For Ever and the portfolio of Kendo brands grew rapidly.

The Watches & Jewelry business group recorded organic revenue growth of +4%. On a reported basis, revenue growth was +4% and profit from recurring operations was stable. Bvlgari continued its growth and outperformed the market, LVMH claimed. The brand maintained its strong creative momentum, notably with the enhancements to the B Zero 1 and Diva collections. With good progress in a difficult market, TAG Heuer gained market share and recorded the first positive effects of the development of its core offering. Its new Connected watch was an “immense success”, the company noted.

Food & Beverage The Magazine eZine