January 14, 2021 | LonghornFX – Last week LVMH Moët Hennessy Louis Vuitton SE, the world’s leading luxury products group, announced that it had acquired Tiffany & Co. (NYSE: TIF), the global luxury jeweller.
The news brought an end to the bitter public dispute and potential legal battle between the two companies, as a result of the original deal being delayed twice during the pandemic. french luxury goods giant acquired Tiffany & Co. for $15.8 billion, $400 million less than originally agreed on, in November 2019.
Despite the price drop this still marks the luxury sector’s biggest deal to date.
What does this mean for Tiffany & Co.?
Analysts expect the conglomerate to reposition the brand and streamline it, assessing everything from its network of stores to its online sales and marketing strategies, which LVMH has the cash to invest in.
The company has already praised Tiffany’s branding as a big strength, such as the iconic robin-egg-blue used for their boxes. The company will also likely draw on its experience with Bulgari, acquired in 2011, where it has successfully lifted margins and sales.
Additionally, Tiffany’s last quarterly earnings showed a 70% rise in sales in China and an e-commerce sales surge of 92% in the quarter, revealing that the retailer managed to recover from some of the impacts of the pandemic.
Is LVMH worth buying?
Although LVMH’s acquisition of Tiffany & Co. is promising, it is essential to understand the company’s other areas of revenue and how they have fared during the ongoing pandemic.
The company’s fashion and leather revenue of brands such as Dior, Fendi and Celine, all continue to grow due to their high-end customer base, who easily weathered the COVID-19 crisis. LVMH’s wine and spirit division’s recovery can be attributed to Hennessy cognac, especially in the US. Market, and the integration of two new high-end wines, Château d’Esclans and Château du Galoupet, into Moët Hennessy.
However, LVMH’s other three businesses are still struggling. Store closures, social distancing measures and stay-at-home orders have impacted Sephora’s sales with global demand for skincare and makeup remaining soft. While, DFS Group, which depends heavily on international travellers in airports and resorts, has suffered due to the travel restrictions.
Although sales of watches and jewellery picked up in China, the decline across other markets has offset that growth and the weakening demand for its brands such as Tag Heur and Chaumet cannot be ignored. The company’s acquisition of Tiffany& Co.is set to roughly double the size of its watches and jewellery segment. This move will also help the company expand in one of the fastest-growing industry segments, while also strengthening its US presence.
Moreover, the growth of LVMH’s core brands is expected to rise when life resumes back to normal which provides an opportunity for investors to start a fresh position in the French company while stocks are down. The stock market always has a few surprises in store, as any investor in 2020 would attest. That’s why it is essential to find a broker you trust.
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