LVMH Moët Hennessy - Louis Vuitton, Société Européenne (MC) Earnings Call Transcript & Summary

Good evening. Once again, I'm delighted to be with you today to announce record results in 2023 for the LVMH Group. Indeed, you no doubt seen the press release that has just come out. You've seen the figures. We delivered over EUR 86 billion in revenue, up 9%. We achieved profit from recurring operations of EUR 22.8 billion, up 8% and cash flow from -- free cash flow, slightly negative because we made a number of investments but cash flow from operations is, of course, [ up ]. Firstly, I need to tell you that the end of the year was rather good. The fourth quarter was -- delivered higher growth than the third. That's good news. We know that there were some uncertainties in the market, but that went well. And yet in 2023, the economic and especially geopolitical context was rather uncertain with the various conflicts throughout the world, with inflation, rising interest rates, I think, seem to be calming a bit. We'll see what the situation is in 2024, but a year marked by those 2 major global difficulties. Organic growth was sustained across all our activities, except in Wines & Spirits, and I'll tell you why later. Very good increase in Fashion & Leather goods. In Wines & Spirits, it's mixed. Champagne is up and Cognac both because of the difficulty in the United States. And the minor restrictions in China, the market was less bouyant. Good dynamic for all our watch and jewelry, Maison, excellent results by perfumes. J’'adore is still leading the way worldwide. Sauvage is #1 for the second or third consecutive most widely sold fragrance, both in the men's category and across all categories, and it's the first fragrance launched about 10 years ago. So that's very good performance. Selective retailing. Remarkable performance of Sephora that has managed to exceed all our forecasts. In fact, this morning, there was some interesting article in the Financial Times, are often interesting pieces in the FT. I don't know if we have anyone from the FT with us. But like Lesico, that's an excellent newspaper that I recommend to you that was actually saying in the FT that in LVMH. In the soft luxury segment, we have the 2 strongest brands in the world with Vuitton and Dior. And we have actually good competitors without mentioning 2 remarkable, Chanel and Hermes. And in hard luxury category that is watches and especially jewelry, we also have 2 outstanding brands at Tiffany and Bulgari. And in the competition, there's a very good group that is the Richemont Group announced its 2 great brands, Cartier and Van Cleef, so amongst the 8 brands considered the best. Well, we have half. It's pretty good. We'll see how things develop, if we can grow the scope or push some brands, other brands to join the top 4. If we review rapidly the various business areas, leading brand of the group, Louis Vuitton, with the many changes, new CEO. Well, not for us because we've been working for -- together for, what, for some 20 years now. And who joined Vuitton February last year. And a new men's designer. You saw the photograph of the first fashion show, Pharrell Williams, very successful of the first collection designed by Pharrell Williams. And the previous week, we had that great show at the Louis Vuitton Foundation, and that of Nicolas Ghesquière, who goes from strength to strength with remarkable success. Vuitton is a very special business, the leading global luxury brand, and it's really not just about fashion as we say with Pietro, it's -- we've invested quite a lot -- in a bit of fashion injected back at '95 in order to boost the creativity. It worked well. It's still working. But the products are high-quality products. Essentially, they're really historical products that we're developing with him, the designers and others that are truly the call of his French historical brand, making many workshops work in France, given a lot of work where we recruit a great many craftsman every year and is driving this brand to success. And with Michael -- when Michael Burke was in charge of Vuitton, we launched the watches, and we've just launched a new watch that I have here, which is the Tambour watch, an evolution of the historical Tambour watch that was launched 20 years ago. And that is also encountering great success. And that's a new step in the -- going up range of the brand to what is done best in the terms of technology, craftsmanship in the world. Perfumes. Vuitton perfumes launched not so long ago and are delivering outstanding growth with something specific which is these perfumes only sold in the Vuitton network. The Vuitton network is the only in the world to -- that never has organized is sales. It's unique. You'll never be able to find a Vuitton product available in the sales. Second brand I wanted tell you about here is Dior. A number of changes with the arrival of Delphine, who was at the side of Michael Burke for 10 years at Vuitton. And with Michael, that really does account for the success of Vuitton and worked previously for 15 years at Dior, so a good experience of the matter. And now heads up with Mr. [ Sean De La Palma ], he's with the Christian Dior brand that to my mind, is the finest haute culture brand in the world. Christian Dior remains the most widely known French name worldwide. It's a outstanding success of Maria Grazia's collections with the haute couture fashion show this week. Absolutely amazing. Haute couture is a very small market, but it's developing because the most high-end products are those that are most widely sought after in the world. And so couture with Dior, well, we can't meet demand. We can't deliver to our customers. I mean the workshops are what they -- requires a huge amount of work to train the seamstresses to produce haute culture dresses. It takes an inordinate amount of time, and we have to restrict the orders. Great success with high jewelry. We saw the Victoire de Castellan last year that met with wider claim in the year. Ended with fireworks display in the U.S. Great sales results in December with the Saks animation. I don't know if any of you were in the U.S. and New York for the opening of Saks and Dior. For the first time, I think they blocked Fifth Avenue. We did a spec tech. Can you imagine, blocking Fifth Avenue in New York? I mean here, when we block the corner of Vuitton, it creates a whole hoo hah. We managed to do -- it was easier in New York, and it boosted Dior sales hugely across the U.S. So I'm not going to dwell too long on all the brands because there are many that are successful. Great success for Celine, driven by Hedi Slimane that is now topping EUR 2 billion in sales. Also for [ Loewe ]. Fendi is continuing growing from strength to strength. And Loro Piana, greatly sought after of luxury as it's known is posting very high growth rates. To my mind, overly high. We need to put the brakes on a bit because I'm often told that growth rates, why are you only delivering 8% to 9%? Well, I find that's pretty good. And I hope that we won't exceed that. I'd rather slow than push. And in this group, I'm fortunate in having people that I need to slow down. I mean I spend my time slowing. I did it for Delphine. Michael spent 10 years trying to put the brakes on it. But it's easy to develop this business. We have so many successful products. All we have to produce more, but we have to resist that to no point. They must be of flawless quality, and you mustn't be in a hurry when you're achieving 8% or 9%, maximum 10%. That suits me fine. I don't know for the analysts, it's enough -- well it's never enough. They're never happy. So that's really not a problem. But at least for the brand, for the desirability of the brand, our main asset really, midterm, it's perfectly adequate. That's just 1 brand that we can't slow that like Chris de Lapuente. Sephora, It's a bit difficult -- a bit different because that's retailing. The success achieved in the year was quite extraordinary. Watches & Jewelries, just to say briefly that at Tiffany, it's going pretty well there again. We're not really in too much of a hurry but since we acquired it, we arrived in that company back in 2021. Well, last year, operating income tripled as compared to the previous -- the year preceding our acquisition. It's not too bad. I'm not saying we're going to triple it in the next 2 years, but it's a pretty outstanding success there. Again, we didn't want to go too fast. We incredibly inaugurated. In '23, we did the New York flagship store. That's quite extraordinary. That is delivering quite surprising result as it's working well. We're rather limited, and that's good. You need more gems, precious stones. The workshops have to deliver. Bulgari is an extraordinary brand. It's the 2 strongest brands in our jewelry portfolio. Bulgari, very tremendous success achieved in 2023. I'm not going to dwell on all the strong points of our 2 jewelry brands. You're familiar with them. And on the watches that were -- also achieved good successes. The watches headed up by Stéphane Bianchi, who'll soon be assuming other responsibilities, and we'll discuss that in due course. But these watches, TAG Heuer, that's a historic brand, has come a long way. We've doubled sales over the past 4, 5 years. We launched new products that are very good. It's not the same category as the Vuitton watches. The Vuitton watches are truly high-end watches with the brand, the know-how, the [indiscernible] in Geneva, TAG Heuer sports brands more "accessible" but are growing quite well. And in the same business group, we have Hublot that you all know, that's doing well. Fred, Zenith and Chaumet. I hope I haven't forgotten anything. Now for 2024. What we can say for 2024 is that I am personally very confident I expect to continue the growth that was achieved in 2023. The market went through a period and we'll see during the course of the year, the effect of the interest rates decline that will kick in. The positive impact in the U.S. of the coming election. Every time the election in the U.S., the market is more dynamic. So we expect the U.S. market to be more dynamic in '24 than it was in '23. But if we also want to look at the potential problems, it's true that the geopolitical situation on which we have no impact with crises, both in Eastern Europe and in the Middle East. We're all hoping that they're not going to generate, I don't believe so. I'm pretty confident that to have achieve a solution in spite of the tragic situation in both cases that we must expect for things to veer out of control. In which case, the global economy would suffer. Those are the 2 points of concern that I see in 2024. Otherwise, I think the economy will be more favorable for our products. And of course, we have a whole set of new products, of events for all our brands. We've got a great many things planned. And lastly, I'd like to say that in the group, we're ready to continue this measured expansion based on the quality and desirability of our brands and, of course, to continue our -- the commitment that we've shown. And we're very pleased that all our employees are hugely motivated on the environment, on inclusion, all the factors that when you joined LVMH, as I said, you're joining a family just not a an anonymous group. And you see the 2 family members, 2 additional family members will be joining the Board. I think that's good, aside from the fact that it brings down the average age of the executives. That's very much in vogue to have younger executives even if I haven't planned -- might have a question. I haven't planned to -- I don't plan to leave either in the short or medium term. So rest assured, you might be sad, but I'm here for a while yet. I see smiles so that it does not creating any panic on the part of my team. So this family that welcomes the main members of the group. When one enters LVMH, one enters a family. Considered like a family. We do things. We approved the Board today an employee share ownership plan that was submitted to me, and we're going to launch that during the course of the year once it's been tabled at the AGM, and it will continue, hopefully, to attract the best designers. We already have a good number, but we have to motivate. I know that Pietro, Delphine and Michael were working with them because the designers, I mean, that's really great. But we have to guide them. We mustn't [indiscernible] a few things. The difficulty is both to put their talent in the brand, but at the same time, to respect the history of the brand, its legacy, its historical past, and what was the success of Christianly Dior. What was great in the Monday show by Maria Grazia, we saw the novelty, the extraordinary quality of what she's -- at the same time, we saw Mr. Dior. And that's great for Vuitton. It's a bit more difficult because he wasn't into fashion. So I have to be more imaginative. We're getting there. With Pietro, we're spending quite a lot of time on those -- on that process. I don't know if I've forgotten it. Yes. Of course, all this, all the new entrants, the company are viewed and considered as entrepreneurs. This period of enterprise, of entrepreneurship, the motivation of executives is fundamental for success because the group is decentralized. We've got many companies. Over 70 companies each are headed up by a CEO, who, of course, must discharge the full mission but is -- has autonomy, full autonomy. And that's why we do many -- well, how do you manage so many different companies? Well, they manage themselves, of course. There's interaction, but there's independence is that every leader behaves as though he owned his brand, and that's good. Sometimes it's difficult because we want to intervene or step in. Sometimes we don't always agree, but that's good. That's as it should be. But with -- through contradiction, you can move forward. Michael's smiling. But for 10 years, we sometimes had some pretty fraught discussions, but that's good. It does show that the company is headed on a day-to-day basis by a leader who's in it from morning until night. So confidence for 2024. Bravo to all the employees who are here for the extraordinary results that you delivered in 2023. And now, Mr. Guiony, our Chief Financial Officer, whom you all know, will present these great results.

Thank you. And for those of you who are on planet Mars over the past 2 months, this is a picture of the side of the Saks Fifth Avenue building in New York City, of which we are very proud. We're very proud of the figures as well. Few record figures, EUR 86.2 billion in revenue. It was EUR 23 billion in profit from recurring operations. And the debt-to-equity ratio, the gearing is very satisfactory. Starting with the revenue. We went from EUR 79 million to EUR 86 billion last year. Organically, we're talking about 13% organic growth. There was a significant negative currency effect. It's minus 4%, but all in all, in euros, we're still up 9%. If you look at the geographical distribution of sales, I tend to skip over this sometimes, but they are the things that we like to see, 25% in the U.S., 25% in Europe and Asia being the biggest region, 31%, including Continental China. And the rest is Middle East and South America. Now we look still at the geographies looking at growth. On a quarterly basis, region by region, that gives you a sort of general picture, starting with the United States. United States was -- had a challenging year. It ended up well enough better than it started. But Q2 and 3 had little growth, but there was some acceleration in Q4, and that's not just because of Sephora, even though Sephora enjoyed significant growth. The other activities that are possible to achieve that growth. Japan remained very high, even in Q4. Q4 was -- we've slowed down a bit, but you have to remember that there were price increases in Japan to avoid -- to turn Japan into the Japanese duty-free window for a company, but it started off on what was a challenging basis. Asia, a bit complicated again because the lockdown policies, especially in China, distorted the performance in Q2 and Q3. But if you look at the position over 2 years, there was double-digit growth in Asia and [ Middle East ]. And Europe is back to growth levels that were more in line with what we had in the past. We had 2 exceptional years. We are sort of landing as it were in Europe, but we're still looking at significant growth. Turning to the various businesses. So overall organic growth was 13% apart from Wines & Spirits, and you may have questions about that. And that was a very specific situation because there were high levels of inventories of that in 2023. Other than that, all businesses enjoyed significant growth and in the competitive environment, especially starting with Fashion & Leather Goods, which comes to about half the revenue, half the sales of the group with the highest growth, except for selective retailing. We're looking at 14%. Perfumes & Cosmetics are again double digit at 11%. Watches & Jewelry, 7%. And as I said, selective retailing is way ahead of everyone else, not just in terms of profit, but in terms of organic growth for the year. And there were negative currency effects, minus 4%, but they were 2% negative in H1 and 6% negative on H2, especially Q3. And that, of course, dragged our sales performance down. A few words about this large [ orbit ], difficult to read, but you look at sales or revenue by business line. So what this highlights is the 2 halves of the year, especially on the left-hand side of that table. The first half had 17% growth, and that reflected also the fact that we were pulling out of the COVID crisis, which had lingering effects, especially in Asia. And then the second half of the year, which is sort of a normalized performance and looking at about 10% growth. But average organic growth over the past 35 years has been 9.1%. That's the historic trend. So we were close to historic trends indeed. And that is indeed what we wish to achieve. I want to repeat what Mr. Arnault said, if you have any questions, Philippe might say, there was some volatility, but we ended up the year better than we started in Wines & Spirits. Fashion & Leather Goods also there were ups and downs. I will go into the details of all the numbers, but you have to remember that by and large, the second half of the year was a year of the sort of the soft landing. Looking at distribution per business, but looking at profit from recurring operations, up 8% overall. Wines & Spirits were down 2%. That is unfortunate. Nonetheless, sales were significantly -- I mean, minus 10% in Europe, so minus 2% in profit. It means there were significant efforts were made to keep costs under control in the Wines & Spirits business and so we can be very pleased with that performance in what is after all a very challenging context. Fashion & Leather Goods, Perfumes & Cosmetics and Watch & Jewelry, about 7%, and that is in line with the revenue in euro. And so the profit margin remains perfectly satisfactory, especially Fashion & Leather Goods where we have almost 40%. Selective Retailing, 76% in organic growth, so significant leverage there. The margins were up significantly. At Sephora, we're looking at levels close to the peaks we enjoyed in 2017, 2018. So that is a very, very satisfactory performance. The next one, you see that the net profit, again, I won't [indiscernible] statement. The gross margin, [ 68.8 ]%. I mean, that's significant. This is more than significant, in fact. And well, this is why we can continue investing. Expenses overall were up 10% over the year. But that varies from the big difference in H1, up 18% in H1 and only [indiscernible] in H2. So we were able to adjust expenses to revenue level, euro-denominated revenues. And in fact, profit margins were slightly up, whereas it was slightly down in H1. Now this is an issue that is very much your concerns, so that's why I was referring this. But we're still looking at 18% overall growth in the operating expenses. We decided to do away with the Starboard, that is the businesses on luxury boats. So we found it difficult to make a profit. We found it difficult to do business with operators. And so we decided to pull out of that business. I'll give you a few words about the financial performance and the income taxes, still 26.2%, almost EUR 6 billion in taxes paid. Just [indiscernible] this figure of those not in this room who believe that we don't pay any taxes. All in all, that is the last comment, net profit. Group share of net profit stands at about slightly above EUR 15 billion and that's also about 8% in line with that of profit from recurring operations. We said that this was about 8%. There was an unpleasant currency effect, about EUR 700 million. So our performance last year was not helped by the currency factors. So the financial performance you have 4 items, net financial debt. In other words, interest expenses. That grew significantly, but you may have found -- you may have noticed that interest rates went up. Gross net that at about EUR 20 billion, half of it is in -- at fixed rates, so it's not sensitive to variations. But the other variable rates, especially short-term loans and that, of course, we suffered the variation in the yield curve. And so there was also the leases that shouldn't really be the lease liabilities. It's is the invention of IFRS 16. It shouldn't be there, but it's still there for -- so a reasonable because of hedging is slightly up, they were slightly up. And the portfolio last year, the portfolio lost about EUR 500 million in value. Now it's up EUR 260 million. In fact, it is -- even though these are potential capital gain, we haven't sold anything. But all in all [indiscernible]. If you look at the balance sheet, we have some high tangible assets because we think a number of acquisitions more inventories, more equity. And that is because there were fewer acquisitions, at least, significant acquisition is your cash flow. So you have a contrasting figure, self-financing capacity, I mean, it was up 10%. I mean, that's ongoing the level of [indiscernible]. We paid more taxes. There was more interest expense. and the WCR change was due to inventory. Part of it is something that has to do with our business. But other was simply because over the second half of the year, we had inventory for sales that turned out to be less than expected and so we had more inventories than expected. And then the operating investments, EUR 7.5 billion. Inside that, you have about EUR 2.4 billion in real estate property. I'm not talking about stores. I'm talking about the walls, the buildings themselves. And this, of course, these are one-off. And [indiscernible] if you pull out real estate, there was a EUR 4.5 billion last year and EUR 5 billion this year. But the variation is not as dramatic as it looks. So that is what is behind the operating investment. So you have dividends we paid to minority interest shareholders. And there was also some share buybacks, so EUR 10.7 billion, [ 17 ]% of equity. Debt to EBITDA, we're looking at 5 months of EBITDA. I think this is a satisfactory performance again. And finally, dividends, we will propose a EUR 13 dividend to the AGM, up 8% so in line with the growth of -- profit and revenue. And there was an interim dividend paid out last year, and the balance will be paid in April. Thank you.

Just a brief word to follow up on that because I was informed that I omitted to mention Wines & Spirits. Wines & Spirits delivered a year, as Jean-Jacques said, marked both the success of wines and champagne and slight difficulty on the U.S. market, in particular, with Cognac. It's worth noting that Philippe Schaus helped us great to buy Chateau Minuty, one of the most iconic roses and between the Chateau Minuty and the Chateau d'Esclans were far and away, the leading producer of [ Jose Provance ]. It's excellent news. Another point I omitted was going to say what about the success of Berluti, Berluti has been managed this year for some 10 years. And the performance was excellent for Berluti. And lastly, on Perfumes & Cosmetics, Dior delivered a remarkable performance. And it's Stéphane who's taken over the division of wines, of Perfumes & Cosmetics. And the brands aside from Dior working very well. The rate. If you look at the rate of increase of our Perfumers & Cosmetics brands were amongst those that are posting the highest growth in the market with all the major competitors I won't cite here. We all know of, the Perfumes & Cosmetics market with, of course, Christian Dior in the lead going from success to success. And now we're available to answer your questions. If you have any questions, of course. So if you just kindly introduce yourself when you ask your question.

Antoine Belge, BNP Paribas. I have a question on the brand Christian Dior. For the past 2, 3 -- 3 or 4 years running revenue doubled year-on-year. Now it's only up 14%. But you're going to continue up this trend. You said something about slowing down the growth. Are there things -- a number of things you might wish to consolidate on the brand on Christian Dior? Jean-Jacques Guiony, second question said that there were contrasting performance between H1 and H2. There was more rigorous cost over control -- control of the costs in Wines & Spirits but also other businesses. There were also negative currency effects next year. What do you expect? And then regarding hard luxury. You said that brands -- well, you mentioned Richemont Cartier from [indiscernible] had remarkable performances. Organic growth in Watches & Jewelry, was 3% over the past 2 quarters. What is it that Tiffany and Bulgari need to be able to compete with the likes of Richemont? And you said -- well, you showed some admiration for that group if [ Rupert ] was willing to forge a partnership, are these brands that you might consider adding to your group?

On your first question, the haute couture growth is in the average of what was reported. But as I said earlier, growth is not -- must not be a goal. The goal is desirability. People must desire the brand, whether it's for Dior or other brands in the Fashion & Leather division. It's good to generate growth. It's great what we did with Pietro, these past few years with Dior. But we've reached a stage such that we no longer need to have such high growth and between 8% and 10% is perfect. We do more at retail, too, but the goal isn't to generate growth at all costs. I repeat that here. I'm very happy to be able to slow down, slow them down. Even some eager horses that I have to slow them. I mean that's good. It's rather -- it's more restful than having to push them. And for the desirability, mustn't try and have as a goal, the top line, the revenue. I'll end with Richemont. Rupert we consider as an outstanding leader. And I don't, in the slightest, wish to upset his strategy. I understand he wants to remain independent. I find that very good. If he wants support to maintain his independence, I'll be there.

On profit margins, you mentioned -- you said that margins were volatile. Well, I mean, they were down 0.5%. In H1, up 1.1%; in H2, down 0.35%. I mean these are minute variations. I cannot question -- answer your question on profit margins -- in expectations in 2024. 2021 margins were up significantly, up 8 percentage points. And we said at the time that we propose to remain there, and we were able to do that. We're 26.7% now with 26.5% today. So we were able to keep margins at that level. We certainly intend to do this.

Okay. Any further questions?

I'm Edouard Aubin from Morgan Stanley. Mr. Arnault, you seem confident on the beginning of this year. Can you say a few words about the latest trend, December, January, per country? Were these countries where demand was lower? Are things looking up in the U.S.? Can you tell us about the trends? That would be nice. Another point we referred to. You said that over the past 12 months, the brands at the top of the pyramid overperformed the rest. I mean, the top end brands are really overperforming. Do you think that trend will continue? Or do you believe that because luxury is sort of becoming -- is opening to sort of the middle class is becoming more democratized, that might bring the top brands closer to the other levels? And then on Wines & Spirits, there was a rather unusual situation. Demand was slightly down, but we also found that there were discounts on certain -- on some of your brands. Can you give us details about -- I mean how you -- how did you balance that with keeping costs down?

Well, on the trend, the upward trend, people going for the top end to the high end, that trend is there. But it doesn't mean that the other products are no good. But to bring -- to drive the brand up, it is, of course, the most outstanding products that will do that, that will do the driving. And that trend will continue, especially if these exceptional products are not just there to stay in the window, but if they really will be sold and purchased even if they're expensive. And if you look at our competitors, prices went up significantly over the past few years. Now when prices go up, when you have price increases, well, there should be a reason behind it. It's a technical and economic reality. It's not a matter of saying, come on, let's just hike up the price because demand is there. No. There must be a reason for that. The product must justify this. In about watches, I'm not talking about the one I'm wearing, which is -- it's not cheap, but it's, say, affordable. But some of the watches will become much more expensive at Vuitton, in particular. Some watches can be as high -- as expensive as EUR 500,000 or EUR 1 million. I mean it's only a Vuitton that workshop can build and no one else can do that. These are autonomation. I saw one such machine built by Vuitton. And on the front, there was the picture of Albert Einstein sticking his tongue out. But if you wind up the clock, you will see that the -- Einstein's tongue is going up and down while giving you the time of day. And that alone is worth EUR 500,000. You make one of these, that time piece. And that is the stuff dreams are made of. This is, of course, what will drive the brand up. Now regarding the distribution between China, U.S. and whatnot. Well, a, we don't divulge these figures anyway, at least -- well, mid-December, the trends were pretty much the same. But we look at the customers in China over the past 2 years where the levels in Q4 were about the same as in Q2 and Q3. So for Fashion & Leather Goods, we were looking at a push of 30% in December. I mean I love to make comments on months within quarters, but so December did well. As to profit margins in Wines & Spirits, I don't know if Philippe can take this, but I can say briefly, there are 3 items -- there was a positive currency effect. There were currency gains. And we know that this, of course, helps the profit margin. But what you said about discount, there were no discounts. We canceled the price increases. Discounts is what Pernod and Remi do. But no, we decided to cancel the price increase, but there was no -- not a discount, and therefore, there was no impact on the profit margin because it was a price increase that didn't occur. Not the same as a discount. But of course, we engage in cost control, especially marketing expenses because demand was low in certain countries. But that there are areas where there's no need to go marketing -- to do any marketing if there's no demand. And inventory. If the retailers already have the inventory, there is no need to spend any kind of money on marketing. And that is why profit margins went up. But there was very good work done by the Wines & Spirits division.