Home Headline News Louis Vuitton, Gucci and Cartier Report Strong Earnings

The pandemic and soaring inflation have done nothing to take the shine off luxury brands, from Louis Vuitton to Gucci and Cartier, as the sector hiked prices to notch up stellar profits.

The world economy began to recover from the pandemic last year but the rebound has been accompanied by rising inflation, with prices for raw materials and energy soaring.

But luxury good makers can respond by hiking their prices and actually look more desirable to their customers.

“Our advantage over many other companies and groups is a certain price flexibility, i.e. we have the means to react to inflation,” LVMH chief executive Bernard Arnault told reporters.

UBS analysts estimate that top brands such as Louis Vuitton, which is owned by industry leader LVMH, have raised their prices two-and-a-half times higher than the inflation rate over the past 20 years.

Indeed, “pricing power remains one of the key characteristics of the luxury goods industry,” UBS analysts wrote in a research note.

LVMH bagged a record 64 billion euros ($72 billion) in sales and 12 billion euros in net profit last year, both exceeding pre-pandemic levels.

The French company also owns a broad range of spirits, perfume, jewellery and cosmetics products.

– ‘Less susceptible’ to rising costs –

Kering — which owns Gucci and Yves Saint Laurent — also beat its pre-Covid levels to book a net profit of 3.2 billion euros on sales of 17.6 billion euros, the group reported on Thursday.

Kering CEO Francois-Henri Pinault acknowledged that “for every new season, we create a new collection and we review all the price matrices.”

Hermes chalked up profits of 2.4 billion euros on sales of nine billion euros.

Hermes chief Axel Dumas said that his brand, which is enjoying “very strong demand”, raises its prices once a year.

“All of our products have the same margins. We don’t play with our prices. They’re linked to manufacturing costs and not to desirability.”

He argued that the craftsmanship that goes into making Hermes bags means that they are “perhaps less susceptible to rising energy and raw materials prices than others”.

Swiss group Richemont, which owns Cartier and runs its business year from April to March, said it booked sales of 5.6 billion euros in the third quarter alone, an increase of 38 percent over the corresponding period of 2019.

– ‘There are limits’ –

“In certain cases demand exceeds supply and that means consumers will both trade up and likely accept paying higher prices, which again will cushion the margin,” said analysts at HSBC.

Rolex, for example, had largely refrained from increasing prices during the last two years.

But at the start of 2022, it raised prices by more than 3.0 percent on average “and for some models they soared as high as 12 percent.”

Chanel “has also been in the news for its aggressive price hikes of iconic bags during the pandemic and more so recently,” the analysts said.

“While not every luxury brand can pull off this double-edged sword, we believe Chanel’s pricing actions have probably created a good space for the likes of Louis Vuitton, Hermes and Gucci to raise their price points further.”

Back in November, consultancy firm Bain & Company forecast that the luxury goods sector would grow by 6.0-8.0 percent annually and expand to 360-380 billion euros by 2025.

Nevertheless, Flornoy fund manager Arnaud Cadart cautioned that raising prices too sharply could hurt sales.

“There are limits,” he said. “A 1,000-euro bag that costs 1,200 euros the next day, that can slow down demand.”

You may also like

logo-white

Your Trusted Source for Capital Markets & Related News

© 2024 LiveTradingNews.com – For The Traders, By The Traders – All Right Reserved.

The information contained on this website shall not be construed as (i) an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any securities or services, (ii) investment, legal, business or tax advice or an offer to provide such advice, or (iii) a basis for making any investment decision. An offering may only be made upon a qualified investor’s receipt not via this website of formal materials from the Knightsbridge an offering memorandum and subscription documentation (“offering materials”). In the case of any inconsistency between the information on this website and any such offering materials, the offering materials shall control. Securities shall not be offered or sold in any jurisdiction in which such offer or sale would be unlawful unless the requirements of the applicable laws of such jurisdiction have been satisfied. Any decision to invest in securities must be based solely upon the information set forth in the applicable offering materials, which should be read carefully by qualified investors prior to investing. An investment with Knightsbridge is not suitable or desirable for all investors; investors may lose all or a portion of the capital invested. Investors may be required to bear the financial risks of an investment for an indefinite period of time. Qualified investors are urged to consult with their own legal, financial and tax advisors before making any investment. Knightsbridge is a private investment firm that offers investment services to Qualified Investors, Members and Institutions ONLY. Qualified Investors are defined as individuals who have met those Qualifications in the relevant jurisdictions. Members are defined as individuals who have been accepted into the Knightsbridge membership program. Institutions are defined as entities such as banks, pension funds, and hedge funds. If you are not a Qualified Investor, Member or Institution, you are not eligible to invest with Knightsbridge. All investments involve risk, and there is no guarantee of profit. You may lose some or all of your investment. Past performance is not indicative of future results. Knightsbridge is not a registered investment advisor, and this disclaimer should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions. By accessing this website, you agree to the terms of this disclaimer. Thank you for your interest in Knightsbridge.
CLOSE