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LVMH says underlying profitability in H1 remained flat

French luxury group LVMH on Tuesday posted flat underlying profit growth on the back of a 3 percent rise in first-half sales, broadly in line with forecasts.

The luxury goods industry leader, which controls 70 brands including Louis Vuitton, Dior, Moet & Chandon champagne and Hennessy cognac, said it saw no growth in like-for-like sales at its all-important fashion and leather goods division during the first half.

'Good opportunity'

Earlier this week, the luxury retailer revealed it was selling Donna Karan International (parent of the DKNY label) to U.S. company G-III Apparel Group. LVMH acquired Donna Karan International in 2001.

Andrea Gerst, portfolio manager at GAM, said the deal did not signal further asset disposals.

"They still need to find a solution for some brands," she told CNBC Tuesday.

"(The disposal of Donna Karan) was a good opportunity selling it to G-III, which is better maybe at managing U.S. department stores. I think it was more a single transaction."


Challenges for the sector

A shopper looks at the window display of a Louis Vuitton store, operated by LVMH Moet Hennessy Louis Vuitton SA.
Balint Parneczi | Bloomberg | Getty Images
A shopper looks at the window display of a Louis Vuitton store, operated by LVMH Moet Hennessy Louis Vuitton SA.

The luxury sector is facing similar headwinds as the airline industry, as terrorism in Europe has weakened demand by reducing tourism and footfall.

"It has an impact, especially in Europe," explained Gerst. "If the market is down, we expect maybe 1 to 2 percent organic growth hit for the full year. It is an impact, but it is manageable."

Despite these uncertainties, Gerst felt LVMH was a solid investment holding.

"We really like the company, it's very well managed in our view," she said. "It's much more defensive than people think: One third of the EBIT (earnings before interest and tax) is coming from spirits and from cosmetics and also their watch business is outperforming the industry."

Meanwhile in the U.K., the vote for Brexit may affect the luxury sector as consumers are becoming weary of brands which market themselves on heritage and artisanship, according to Peter Maxwell, senior researcher at consultancy The Future Laboratory.

"Native luxury brands that trade specifically on their British heritage will absorb some of the damage done to 'Brand Britain' by the vitriol of the referendum and the global perception that the U.K. is now a less open, tolerant and stable nation," he told CNBC via email.

"Patriotism has never been less in vogue and championing the local now has the potential, rightly or wrongly, to be interpreted as jingoism by certain pro-EU demographics."

According to Maxwell, Europe is traditionally seen as the home of luxury manufacturing and severing ties with the continent may have a negative effect on the image of British brands among tourists.

Disclosure: GAM holds LVMH shares in its portfolio.

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