Sephora's innovation 'gathering speed' at LVMH

Dive Brief:

LVMH on Tuesday reported that revenue rose 10% to €21.8 billion ($25.5 billion in current exchanges) in the first half of the year. Organic revenue rose 12% year over year and the United States, Asia and Europe experienced "good growth," according to a company press release.
Also in the first half, the retailing group share of net profit soared to 41%. Profit from recurring operations rose 28% to €4.65 billion for the first half of 2018. Operating margin expanded 2.9 percentage points to 21.4% and gross margin increased significantly by 210 basis points to 67.2%, the company said.
In its second quarter alone, revenue rose 11% compared to the year-ago quarter, and organic revenue also grew 11%, the company said.

Dive Insight:

Many forces are on LVMH's side at the moment, including surprisingly strong demand in China that is shunting aside fears of a slowdown there. After a decade of sluggish sales, there's also a rebound in Japan, plus lower corporate taxes and an economy that in many places is favoring luxury sales.

But the company is leery of the impact that tariffs could have on this momentum. "I can only mention risks connected to the higher tariffs throughout the world, although the luxury industry is not in the front line on this, such a risk would certainly bear some negative consequences for us," LVMH Financial Communications Director Chris Hollis told analysts Tuesday, according to a conference call transcript from Seeking Alpha. "For these various reasons, I think that despite the strengths of the business, the current trends cannot realistically be extrapolated to the second half of the year."

One of the few brands in its portfolio not working to appeal to the wealthiest consumers is Sephora, which is doing particularly well in the U.S., Hollis said. The brand will continue to open its smaller studio locations, which he said have been well received. "Looking to the second half of the year, Sephora is, as always, focused on innovation in products and services that cannot be found elsewhere," he said. "Renovation of the retail network will also continue."

CFO Jean-Jacques Guiony added that Sephora's innovation is actually "gathering speed" and there remain more opportunities in the U.S. in light of the strong beauty market there. He pushed aside questions about shifts in demand from high-priced makeup to skincare, saying that the price points are similar and that that's the purpose of innovation.