Apr 12, 2016
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Fewer Paris tourists and DKNY shift hit LVMH's fashion and leather

Apr 12, 2016

Luxury industry leader LVMH said on Tuesday a poor performance in fashion and leather goods was due to lower tourist spending on big brands such as Louis Vuitton in France and the ending of some DKNY lines.

LVMH's first-quarter sales figures on Monday fell short of forecasts and sent its shares down more than 3 percent, also dragging luxury goods peers lower.

Louis Vuitton - © PixelFormula

This came after Prada posted a bigger-than-expected drop in profit and said it would close shops due to weaker demand.

LVMH said it had stopped the DKNY Jeans and DKNY C lines, which represented lost revenue of around $200 million and the impact would be felt throughout the year.

"The discontinuation of these lines has had a significant impact on growth of the (fashion and leather) division in the first quarter," LVMH Finance Director Jean-Jacques Guiony told analysts in a conference call.

He said the fashion and leather division would have had some growth had it not been for the discontinuation.

After the attacks on Brussels and Paris, the luxury goods maker said there had been fewer tourists travelling to Europe "from the east," its shorthand for Russia and Asia.

Guiony said trading at Louis Vuitton in Paris was down by more than 10 percent and he had not seen any improvement yet.

LVMH, which also sells Guerlain perfume and Fendi bags, makes 9 percent of its total sales in France.

"The negative impact we saw this quarter as a result of the decline in France will be visible in every group in the sector, even though Louis Vuitton and Hermes are more exposed to this market," luxury goods analyst Hermine de Bentzmann at broker Raymond James said.

Also on Monday, Prada said it would harmonize prices so that there would be a discrepancy of only 10 percent between regions. Such differences have encouraged the growth of a gray market, fed by people buying products in Europe and selling them back in Asia where prices are higher.

Guiony said doing the same for LVMH was not a "palatable" option as the 10 percent range was too small to cover significant customs duties and foreign exchange differences.

He said LVMH's fashion and leather business was flat in mainland China and depressed in Hong Kong and Macao, but there were pockets of growth in Korea, Singapore, Australia and Japan.


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