Tiffany & Co. acquisition a brilliant bargain for LVMH

By

Dominique Muret

Translated by
Nicola Mira

Published
Feb 7, 2022

Barely a year after being bought by the world's number one luxury group, Tiffany & Co. is turning out to be a strategic asset for LVMH. CEO Bernard Arnault opened the presentation of LVMH’s annual results by stating that “the highlight of the year was the incorporation of Tiffany.” The iconic US jewellery brand was bought by LVMH at the end of 2020, and was incorporated in the group’s financial results in 2021. It was a record-breaking year for Tiffany, enabling LVMH’s watches & jewellery division to multiply its sales by a factor of 2.7, growing from €3.35 billion in 2020 to €8.96 billion a year later.

The division, which previously lagged behind the fashion & leather goods, selective distribution, perfumes & cosmetics and wines & spirits divisions, has now risen to third place in the ranking. In 2021, it recorded a 40% organic growth (and a 7% one on its pre-pandemic 2019 result), while recurring operating income skyrocketed, growing by 200% (and by 128% over 2019) and reaching €1.6 billion, thanks to the contribution of Tiffany & Co., which was not included in the consolidated results for 2020.

It was a year of record-breaking growth for Tiffany & Co., at a time when “its Fifth Avenue flagship in New York, [the brand’s] premier store worldwide with a revenue of several hundred million [dollars], was closed for refurbishments for the entire year. Yet [Tiffany & Co.] has handsomely beaten its absolute records for both revenue and profitability,” said Arnault.

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LVMH's group CFO Jean-Jacques Guiony indicated, during the conference for the publication of the group's annual results, that Tiffany & Co. generated “an operating income of over $900 million (€796 million) last year. That was usually the value of Tiffany's EBITDA, but it was instead its EBIT, a remarkable performance indeed.” Tiffany's contribution enabled LVMH to more than double its recurring operating income in 2021, to a value of €17.15 billion, equivalent to a 107% increase over 2020 and a 49% one over 2019.

Besides the products, “which lie at the root of Tiffany’s success,” Arnault ascribed this outcome to various other factors. The first were the changes made to Tiffany & Co.’s senior management in the wake of the acquisition, when two Louis Vuitton veterans took charge: Michael Burke (former CEO of Louis Vuitton) was appointed non-executive chairman of Tiffany's board, while the CEO post was handed to Anthony Ledru, until then executive vice-president of global commercial activities at Louis Vuitton. Bernard Arnault also appointed his son Alexandre, previously in charge of luggage brand Rimowa, as executive vice-president products and communications of Tiffany & Co.

“After [the acquisition], we have been able to introduce [at Tiffany] a management team we are well acquainted with, experienced both in this business and in the group. An energetic team of professionals who have a feel for the products, their promotion and their distribution,” added Arnault, who acknowledged the acquisition was made at a time that was propitious for LVMH, since Tiffany was not in top form. “During a period, up until the end of 2019, when the luxury sector enjoyed very strong and quite generalised growth, Tiffany languished. Over nearly five years, revenue remained flat, and so did profits,” said Arnault.

Another key factor of Tiffany & Co.’s 2021 success was its advertising, which marked a complete break with the past, putting a strong emphasis on social media and celebrities. The ‘About Love’ institutional campaign, starring pop singer and global celebrity Beyoncé and her husband Jay Z, “was a global success, exerting a huge pull on young consumers,” said Arnault.

LVMH bought Tiffany & Co. for a little less than $16 billion (€13.4 billion). A sum that, within a year, has been recovered almost in full by the group, thanks to the treasure trove it was able to generate with a cash flow of €13.5 billion - the previous record was €6.2 billion in 2019. “In 2021, we invested €13.3 billion, almost entirely to acquire Tiffany. We generated an available operating cash flow of €13.5 billion. Pushing the argument further, I could say that, in a year, Tiffany’s acquisition has been paid for. This isn’t entirely the case, since we also put [the money] to other uses, but it is nevertheless a very telling fact,” said Guiony.

“Everyone told us the [the acquisition] was expensive. But I actually believe it wasn’t so expensive. Perhaps this is why Mr Guiony has been able to offset the cost so quickly. Not forgetting of course the results we achieved. I think that, if Tiffany was still a listed company, it would now be worth twice as much,” said a grinning Arnault, acknowledging that he “was doubtlessly exaggerating.” But he concluded by saying that “we made an excellent acquisition for the group.”