Chanel Says Sales Will Take a Significant Hit from the Pandemic

Chanel forecasts a “significant” impact on its business this year after the coronavirus pandemic forced it to temporarily close its boutiques, manufacturing activities and distribution centers worldwide.

The French luxury house reported on Thursday that revenues totaled $12.27 billion last year, up 13% at comparable rates, as it enjoyed a record year despite the death in February of its longtime creative director Karl Lagerfeld and the arrival of Virginie Viard as his successor.

Indeed, ready-to-wear was Chanel’s best-performing product line last year, with topline growth of 28%.

The privately held company logged an operating profit of $3.49 billion, up 16.6% from the previous year, while its operating profit margin rose to 28.5% versus 27%.

It recorded strong performances across all regions and product categories, despite challenging economic conditions that included Hong Kong demonstrations and strikes in France.

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Sales in Asia-Pacific rose 14.7% at comparable exchange rates to $5.43 billion, representing a slowdown versus the previous year. Europe also grew at a slower pace, with revenues up 5.9 percent to $4.53 billion. Sales growth accelerated in the Americas, up 9.7% to $2.31 billion.

However, the landscape has changed dramatically since then, noted Philippe Blondiaux, the group’s chief financial officer.

“For obvious reasons, Chanel will not be immune from the impact of the ongoing global crisis and as such we expect the impact of COVID-19 will lead to a significant reduction in revenues and profit for 2020,” he said.

“We anticipate that the external environment will continue to impact the luxury sector and will continue to impact Chanel for at least the next 18 to 24 months,” he added.

Earlier this month, Bruno Pavlovsky, president of fashion and president of Chanel SAS, told WWD the brand expects to see a double-digit drop in sales in 2020. Blondiaux declined to give specific guidance for the year, saying the company was receiving conflicting signals.

“On the one side, we have recorded a very strong performance with our local clientele in all the countries where we have reopened, with double-digit, sometimes even triple-digit, growth numbers week after week in countries like China, or Asia overall – but not only,” he said.

“We had the same positive growth numbers with our clientele in most of the Western European countries, whether it’s France, Italy, Germany, so this is very encouraging in terms of the resilience of our brand, the resilience of our business,” Blondiaux said.

However, he did not expect this to compensate for the absence of international tourists and the continued closure of duty-free stores as fleets of airplanes remain grounded. “We don’t see that getting back to normal before the second half of 2021,” he said.

Blondiaux said that 15 percent of Chanel’s boutiques remain closed, but the company expects to weather the storm thanks to its strong financial position. It ended 2019 with a net cash balance of $282 million, versus $2 million the previous year.

“We have entered this crisis from a position of strength and we are confident with the fashion expertise of our teams, our record of innovation, our creativity, we are very well placed for the years ahead and once this crisis will be completely behind us,” he said.

Though Chanel is cutting costs by postponing projects, deferring discretionary spending and freezing non-essential recruitment, it plans to maintain a strong level of investment this year, the executive said.

Its capital expenditures totaled $771 million in 2019, down 23.4% following a sharp jump the previous year. Among its marquee retail projects was a seven-floor flagship boutique in Seoul, whose opening coincided with the launch of Chanel’s collaboration with musician Pharrell Williams on a capsule line of unisex clothes.

“We are going to invest probably the same amount, more than $700 million, in 2020 and this effort will be maintained in 2021,” Blondiaux said.

While Chanel has scrapped plans for another ready-to-wear boutique in the Marais district of Paris due to the lack of foreign visitors, in most other cases, store openings have been postponed, rather than cancelled.

“We are confident in the medium-term outlook of the luxury industry and even more in the potential of Chanel to get out of this crisis stronger. That is why we will maintain our efforts in terms of new boutiques, even if the phasing will be quite different,” Blondiaux said.

The company continued to invest in omnichannel services and digital innovation projects. These include an augmented retail approach, developed with Farfetch, which debuted at 19 Rue Cambon, its largest store in Paris, and an interactive video service connecting its high jewelry salon in Hong Kong with the jewelry creation team based in Paris.

Meanwhile, it is expanding its premises in France with new facilities, including a sprawling building in the north of Paris that will house several of its specialty ateliers. The list of these continues to grow.

“We are continuously acquiring some of these ateliers and we will continue to invest in this vertical integration which is a very important pillar of our creative process,” said Blondiaux. “There are two new acquisitions which are about to signed as we speak.”

All of which points to the Wertheimer family’s ongoing commitment to Chanel, despite periodic rumors of a sale.

“There is no change in our stance, and I think one evidence of this is that we really want to maintain a very strong balance sheet, which in itself is a guarantee of our independence,” said Blondiaux.

Coasting on its record performance last year, Chanel paid its parent company – the Cayman Islands-based Litor Ltd. – total dividends of $1.68 billion in 2019, double the amount of the previous year. But in a sign of the times, the board of directors decided last month there would be no dividend payment this year.

This story first appeared on WWD.

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