Recap #20

Recap #20

1 minutes reading time
2 May 2023

This week's dispatch covers topics such as LVMH's impressive overall performance and strategies for achieving long-term margin expansion in the luxury industry, Exxon Mobil's market opportunities and competitive advantages, and Zegna's brand journey and why it's still in the early stages.

LVMH Q1 2023

The strong results across the board and particularly in China, price increases and volume growth, the currently suffering Cognac business in the U.S., the quiet luxury trend, and key strategic priorities for Louis Vuitton.

LVMH Moët Hennessy - Louis Vuitton, Société Européenne - Q1 2023 - Conference Call Deck-page-25

-> Revenue growth improves rapidly in Asia: On a geographic basis, the group delivered strong revenue growth in Europe and Japan. In the U.S., revenue was good, but softer, while in Asia, revenue growth is improving rapidly as pandemic restrictions have eased. Looking at the business groups, we once again saw strong progress in Fashion and Leather Goods, driven by Louis Vuitton and Christian Dior as well as Celine, Loewe, Loro Piana, Rimowa and Berluti reflecting the deep heritage and each of these as a Maisons and the innovation our teams have brought to them. [...] Revenue continues to be well balanced on a geographic basis and in line with the breakdown in the year ago period. In the first quarter, 36% of revenue was generated in Asia, excluding Japan, which itself was a source of 7% of revenue. 23% of revenue came from the U.S., while Europe contributed 14%, excluding France, which contributed to 7% and 13% of sales came from other markets. [...] As I mentioned earlier, we are seeing a rapid improvement in revenue in Asia with a 14% increase in Q1 of this year compared to the year ago period, fueled by Mainland China, Hong Kong and Macau. – Chris Hollis, Director of Financial Communications (01:30)

LVMH Moët Hennessy - Louis Vuitton, Société Européenne - Q1 2023 - Conference Call Deck-page-5

-> Price increases and volume growth: We've been increasing the business, particularly at Vuitton, in a fairly large way over the past 3 years without really increasing the number of square meters of store density. Sales density has improved quite significantly. [...] I assume that your question, Louise, was about Vuitton. Well, we don't get into many details as our competitors don't. So it's reasonably sensitive in terms of information. What I would say is that the price component is not much bigger than what it was in 2022 and 2021. There are some price components. Obviously, as we passed on some price increases last year progressively but the bulk of the growth, the majority of the growth, still comes from the mix, as we've been doing over the last 15 years, let's put it that way. And a little bit of volume growth as well that helped deliver some numbers that we don't disclose, but as I always say, never very far from the division's average. – Jean-Jacques Guiony, CFO (20:29)

-> More on China’s reopening: We registered some pretty nice pickups in China, which bodes well for the rest of the year. We definitely see a normalization of this market with people returning to our stores with the Internet business picking up so we are really back to where we were prior to the complicated period of 2022 so we are extremely hopeful and should benefit from a strong push from Mainland China in 2023. Certainly in Fashion and Leather, but probably as well in jewelry, so other categories will take a little bit of time to recover. Cosmetic remains a little bit under pressure in Mainland China. I'll discuss cognac later on as you have a specific question on that. But overall, we are extremely optimistic, and we think that the numbers that we have seen in Q1 bodes well for the rest of the year. With regards to the U.S., you're absolutely right. I mean, we have 8% growth, which is more or less in line with what we had in Q4. – Jean-Jacques Guiony, CFO (25:47)

-> The cognac business is suffering in the U.S: The champagne business is doing all right, but the cognac business is under a little bit of pressure. I will try to summarize a little bit the situation with Cognac. In the U.S., we definitely have a severe slowdown in demand. It's been going on for quite a while. We have inventories with our distributors at their maximum level, so we cannot offset a slowdown in end demand with picking up the level of stocks. So obviously, we are suffering a little bit there. We know that the Cognac market is cyclical in the U.S. It's not the first time we see that. Obviously, when the business goes down, everybody asks about substitution products. It is the mood for brown spirit over and people turning to 2 other things. It happened before. We've heard about Vodka and now it's Tequila. I've seen that many times. I'm not worried at all. I mean Hennessy remains, if not the first, probably amongst the most preeminent brands in the United States, and we are absolutely confident that they will recover when demand picks up again. So we are not worried at all. – Jean-Jacques Guiony, CFO (28:03)

-> Quiet luxury: So you name something that we have heard already a few times in the past, 15 years ago, the logo or even the signature of handbags was dead. People were just looking for bags that were unsigned and unlogo. You know what happened afterwards. So needless to say that this is not the trend that we've seen in the following 15 years. So it comes and goes. I mean, that's kind of the kind of thing we get from time to time. If people want quiet luxury products, there are some brands within the group or even some items that we sell that are much more discrete in terms of signatures than others. So we try to accommodate the taste of all our customers. And frankly, we think that's fine. I mean if customers want unsigned products, they should get them to sign products and frankly, it's a vast majority, that's fine as well. So we don't know whether this will be a trend or not in the coming quarters. But in any event, we are ready to offer clients products that will suit their needs. – Jean-Jacques Guiony, CFO (46:25)

-> Pricing philosophy: On pricing, what I meant when we discussed that already at the end of last year is that after a general price increase in 2022. I mean it was difficult to conceive that we would do it again with the same magnitude in 2023, which is probably not going to happen. It doesn't mean that from time to time, there could be some tactical price increases. We discussed a little bit of price gaps due to currencies. It is something that could happen. But global and significant price increases, I don't think so. So I don't comment on future price increases. I just give you the global philosophy which doesn't change. We think that we have done what we had to do last year to reflect inflationary pressure in most of our product lines. This year, we'll be more cautious when it comes to price increases, and it will be done mostly on a tactical basis rather than on a global basis to reflect inflation pressure. – Jean-Jacques Guiony, CFO (51:20)

-> Key priorities for Louis Vuitton: I think the nomination of Pharell is actually telling you something about the blurring of boundaries between distribution, marketing and product strategies. Each strategy we designed at Vuitton and elsewhere. I mean, this is true for most of our brands. There is no such thing now as a pure product, pure distribution or pure marketing strategy. The 3 of them mix and obviously, Pharell has been nominated to spare ahead this effort of being global, and there will be some marketing component in the creation, there will be some distribution component in the product strategies, and we will try to mix all that. So the marketing effort and the branding effort that we are developing at Vuitton and elsewhere is much more global and encompasses the various areas of the marketing mix. So this is the priority to promote the brand to enhance the branding of Vuitton and the other brands through appropriate marketing, distribution and product rates, the 3 being quite entrenched. – Jean-Jacques Guiony, CFO (58:20)

-> Margin expansion through long-term brand building: Basically, what happens in Luxury is that we design strategies that will boost revenues for a while, the margin doesn't move. And when revenues start to develop, we get a boost in margins. We've seen that at Bulgari, we've seen that at Vuitton and Dior. Look at Dior, I mean, for decades, the margins of Dior were pretty lackluster and with the development of the brand in the last 6, 7 years, we've seen an explosion of the margins. So hopefully, the same will happen at Tiffany. We'll develop the revenue through product innovation, through store expansion and renovation. And at some point, the strategy will kick in, in terms of margins, and we'll see a margin improvement. It's exactly what happened at Bulgari, and we try to replicate exactly the same thing at Tiffany. – Jean-Jacques Guiony, CFO (01:00:03)

-> Q1 2023 summary: This first quarter set a strong foundation for the group to take advantage of a gradual return of travel while continuing to stay vigilant in the face of macroeconomic and geopolitical uncertainties. Our business groups all contributed to revenue growth in Q1 and marked a strong start to the year and positioned us well to continue gaining market share. Our online and omnichannel developments continued their strong momentum, focused on delivering exceptional experiences. And taken together, these strengths reflect our Maison's ongoing focus on offering innovative and high-quality products to our customers, a continued selective approach to investments, in particular, in expanding store networks as well as overall cost management and agility. Our first quarter revenue reflects our continued leadership in the luxury goods sector, and we're excited for the rest of the year ahead. – Chris Hollis, Director of Financial Communications (18:03)

Exxon Mobil ESG Update

The world’s need for change, the enormous market opportunity, competitive advantages, and being able to benefit customers, shareholders, and the society at once.

-> The critical role for the energy industry: Our strategy focuses on meeting the world's needs for reliable and affordable energy and products, as we reduce our own greenhouse gas emissions and help others do the same. You've heard us refer to this as the "and" equation, providing the world with products that support modern living and reducing emissions. Over a century of sustained global economic growth has resulted in the world's current levels of greenhouse gas emissions. Looking forward, getting on a path to net 0 will require unprecedented innovation and collaboration among governments, companies, universities and others, something that is not happening today. To achieve sustained emissions reductions, we need a thoughtful and comprehensive approach, one that balances benefits and cost, is sensitive to people's needs and avoids economic hardships, market disruptions and energy and product shortages. When considering the skills and capabilities required to achieve this, there's no question that the energy industry has a critical role to play, one much bigger than most people realize. ExxonMobil is doing our part. This is illustrated by the reductions of our emissions, as you can see in the chart. – Darren Woods, Chairman & CEO (01:35)

Exxon Mobil Corporation - ESG Update - Conference Call Deck-page-3
Exxon Mobil Corporation - ESG Update - Conference Call Deck-page-5

-> The enormous market opportunity and the need for change: The world's climate challenge is immense, and the opportunity it creates is equally immense. We believe the market for emission reductions could potentially reach $14 trillion by 2050. We're working to establish a competitively advantaged foundation that secures a leading position in this new market. Focused on the harder to carbonized sectors where cost-effective solutions are lacking and where we can make a unique and significant contribution. This sector alone, potentially represents a $6 trillion opportunity by 2050. The same competitive advantages that have underpinned our success for over 100 years, and driven outstanding performance in our Upstream and Product Solutions businesses will serve as the foundation for building a world-class competitively advantaged Low Carbon Solutions business. The challenge is enormous. To tackle it, the world needs large world-scale solutions. We need them deployed globally, and at much lower cost than today. The world needs to establish a new industry, a carbon reduction industry with new value chains and products, and we need it sooner, rather than later. These needs play to our strengths. Over our entire history and across the globe, we have built industries and value chains where none previously existed. – Darren Woods, Chairman & CEO (03:28)

Exxon Mobil Corporation - ESG Update - Conference Call Deck-page-9

-> A technology company at its core: We have a footprint in government and customer relations that span the globe and resources to develop the world's largest projects on or under budget and schedule. [...] We have a track record of bringing innovative approaches and new-to-the-world technologies to market. Seen in the first of its kind chemical complex design in Corpus Christi, in Rotterdam's unique to the world conversion process for lubricant base stocks, currently being extended to Singapore. At our core, we're a technology company that manages and transforms molecules at scale, bringing value-added solutions to our partners and customers. From modeling the subsurface and maximizing resource recovery through safe, reliable and efficient logistics and manufacturing operations to unique high-value products. Science and engineering underpins our success. [...] Of course, all of our past successes and current strengths stem from the commitment, experience and capabilities of our people. Their skills, tenacity and resilience are the bedrock on which our company is built. – Darren Woods, Chairman & CEO (05:13)

-> Success starts at home: As the energy system evolves our focus on the fundamentals and investments in an integrated and diversified portfolio of advantaged businesses, anchored in a common set of core capabilities, positions us for industry-leading success. The strategy that we've developed, the organization we've built, and the businesses we're focused on ensures ExxonMobil will continue to grow and create value for our shareholders for many decades to come. Of course, success starts at home. To credibly offer low-carbon solutions to others, we must demonstrate meaningful progress in reducing our own emissions. What we recognize there's more to do, we're making good progress. We reduced operating greenhouse gas emissions intensity by more than 10%. We reduced corporate-wide methane intensity by more than 50%. We're on track to meeting our goal of achieving 0 routine flaring across all of our operated upstream assets by 2030, consistent with the World Bank Zero Routine Flaring initiative, and we've eliminated routine flaring in our Permian Basin operations, which is a key part of our 2030 goal of achieving net 0 Scope 1 and Scope 2 greenhouse gas emissions from our unconventional operated assets. – Darren Woods, Chairman & CEO (07:07)

-> Investing heavily on lower emissions: We're off to a good start with significant progress in reducing our own emissions, with solid plans to improve further and extend our efforts to third parties. We're planning to invest about $17 billion on lower emissions initiatives from 2022 through 2027. About 60% of our investments will contribute to further reducing emissions in our own operations. We'll do this through CCS, hydrogen and the use of other lower emission sources of energy in our operations, as well as further reducing methane emissions. [...] I want to be extremely clear, the investments in this business, like all of our other investments, must be advantaged versus industry, and deliver competitive returns to successfully compete for capital. We expect the Low Carbon Solutions business to generate reliable earnings under long-term contracts. And as it grows, deliver strong double-digit returns. – Darren Woods, Chairman & CEO (10:45)

-> Benefits shareholders and the society simultaneously: Global emission markets have the potential to grow rapidly and reach a massive size. This, in turn, provides significant opportunities for our Low Carbon Solutions business, which represents an important and attractive element of our growth plans. Our organization is clear eyed on the challenges, understands the unique and important contributions we can make and is embracing the new opportunities. Our customers, many governments and other stakeholders recognize a unique combination of experiences, skills and capabilities that ExxonMobil brings to help meaningfully reduce the emissions of others. Our robust strategy ensures shareholders enjoy industry-leading returns and growth in value, regardless of the pace or direction of the energy transition. And finally, society benefits, as we leverage our advantages to help address one of the defining challenges of our age. – Darren Woods, Chairman & CEO (12:04)

Exxon Mobil Corporation - ESG Update - Conference Call Deck-page-20

-> Four key takeaways: One, we're accelerating the world's path to net 0 and we're building a compelling new business; two, we have tremendous advantage built on our technology, our scale, our project execution and our value chain integration; three, we're building a new business model with attractive less cyclical returns and very high growth. And four, we're leading now with real-world projects moving into execution and a rich pipeline of future opportunities. Bottom line, we believe this will be a compelling new business for ExxonMobil, that can underpin future growth and returns for the corporation for decades to come. Momentum is definitely starting to build, and it's going to be an exciting and high impact time ahead. – Daniel Ammann, President of Low Carbon Solutions (34:07)

-> Flexibility and optionality: The total available market, we see growing pretty substantially. Our position in that market, we anticipate being very consistent with our traditional businesses from a market position standpoint, a market share standpoint. And we build that market position based on these core capabilities that we've been doing for the last 100 years that we feel bring a substantial amount of advantage and value in these new markets. [...] The good news on this, though, is we've got optionality. We've got a portfolio of businesses that we're flexible in terms of the resources that we allocate because we're drawing on the same capability and resource set. And we will evolve consistent with policy evolve as policy evolves, consistent with market developments, consistent with technology development. We feel really good about, one, the opportunity; two, our ability to compete in that opportunity; and then three, the optionality and flexibility we have to address that. So basically, it's a question of where does this go, and we'll be there to basically take advantage of it. – Darren Woods, Chairman & CEO (36:50)

Ermenegildo Zegna N.V. H2 2022

Why it's still early in the brand journey, the positive impacts from the China reopening, and the increased demand for Zegna’s most iconic products.

Revenue +16% y/y
Adjusted EBIT +5.8%
*margin 10.6% (11.5)
Net profit 73,629 (-127,661)
EPS 0.21 (-0.67)

-> Still early in the brand Journey: I'm very happy to share that we ended another strong year. Our results for '22 reflect a strong momentum and the scalability of Zegna and Thom Browne brands as well as the soundness and success of our strategy and execution. Last year, we kicked off the re-branding of Zegna, unveiling the ZEGNA One Brand and strategy, which has seen excellent success with customers so far around the world. We are still early in the brand in Journey. [...] We have a number of initiatives to continue building on Zegna success and reinforce its position as one of the world's top luxury brands and the leader in menswear. – Ermenegildo di Monte Rubello, Chairman & CEO (01:36)

-> Excited by the progress of the Made-to-Measure business: I'm optimistic that the reopening of the Greater China region, combined with the positive response we are seeing from customer to our collection across our global network and in particular, European and American customers, will continue to drive our growth this year, and we are particularly excited by the progress of our Made-to-Measure business, which is up double digits when compared with 2019 that was already a tough year. – Ermenegildo di Monte Rubello, Chairman & CEO (03:21)

-> Positive impacts of China reopening: Looking at our journey over the last 3 years, '22 showed continued sales growth and healthy profitability even as the global environment continued to be uncertain, and as Greater China was hit with temporary store closure and COVID-19-related restrictions. As I said earlier, we are seeing the reopening in Greater China already have a positive impact on '23, which we believe will continue for the rest of the year. – Ermenegildo di Monte Rubello, Chairman & CEO (07:20)

-> Increased demand for their iconic products: We see increased demand for our iconic products, especially footwear and our luxury leisurewear, that continue to perform very well, proving the soundness of our decision to focus on luxury leisurewear as a pillar of our Zegna business. Meanwhile, we are also seeing a continued rebound in formalwear, in line with the churn in offices and the uptick in demand for menswear for social and special occasions, in particular, evening wear. Our relationship with our customer is one of the strongest drivers for our success, and we have always prided ourselves on providing excellent customization in the product and service. – Ermenegildo di Monte Rubello, Chairman & CEO (08:46)

-> Taking a minority stake in Norda Run: On January 23, we announced the agreement to purchase a minority stake in Canadian technical trail-running shoe company Norda Run, with an option to gradually increase our stake over the next 9 years. Luxury outdoor space is part of luxury leisurewear continues to be an area of focus for us, and Norda Run used the finest material to produce all-weather footwear of the highest quality, which aligns perfectly with our value of creating the best products from the best materials. – Ermenegildo di Monte Rubello, Chairman & CEO (13:53)

-> A leader in Made-to-Measure:The other thing is Made-to-Measure, as I said, I just want to repeat. Made-to-Measure is our formula 1, and we are surely a leader in that, and it's coming back, and that's very good news. And that's why, as Gianluca was saying, we are strengthening our tailoring supply chain, increasing the production because we just are -- we just want to keep up. We have a 2- to 4-weeks delivery cycle there according to the speed we want to give, and we just want to make sure that we keep being on top of that. So I think overall, I mean pretty good news. And there is no reason why it should slow down in the rest of the year. – Ermenegildo di Monte Rubello, Chairman & CEO (48:37)