Analysis: Brand-hungry LVMH seeks new niche as Vuitton flags

Sun Oct 6, 2013 7:53pm EDT
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By Astrid Wendlandt and Pascale Denis

PARIS (Reuters) - Neverfull - the name of Louis Vuitton's best-selling handbag - sums up well its parent LVMH: even if it snapped up all of the world's last remaining independent luxury brands, it would still have room for more.

The French group's insatiable appetite for acquisitions has been tolerated by investors while its cash cow Louis Vuitton, which contributes half of group profit, grew revenues at a rate of more than 10 percent in the past two decades.

But this year Vuitton's sales growth halved as it failed to anticipate consumers' move away from logo-branded luxury goods, Chinese demand cooled and it put the brake on expansion. Uncertainty about the brand's future growth heightened further last week when a source close to LVMH said Vuitton's star designer Marc Jacobs was leaving.

With Vuitton in intensive care, investors are taking a harsher look at LVMH's other brands and growing concerned it will take years for them to provide alternative growth.

LVMH, the No.1 luxury goods group with more than 60 brands from Dior to Hennessy cognac, has never built a major brand from scratch and is one of the industry's worst stock market performers.

LVMH stock has nudged up just 5 percent since the start of the year, compared to a 20 percent share rise across the rest of the luxury goods sector. Meanwhile, the analyst consensus for LVMH's expected earnings per share (EPS) growth for 2013 is 6 percent, compared to 15 percent for the sector.

"LVMH has underperformed mainly because of big question marks hanging over the development strategy of Louis Vuitton," said Chicuong Dang, fund manager at French asset management firm KBL Richelieu.

Jacobs' departure, to take his eponymous own label public, is part of a series of leadership changes at Vuitton, the most significant in two decades, as it tries to reposition itself as a more exclusive, less ubiquitous brand.   Continued...

A man walks with a Louis Vuitton shopping bag as he leaves a Louis Vuitton store in Paris September 24, 2013. REUTERS/Philippe Wojazer