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In Its Post-Lagerfeld Era, Chanel Is Still Earning Profits

By Elizabeth Paton

Virginie Viard, left, and Karl Lagerfeld at the Chanel Metiers d’Art Fashion Show in New York in December. Mr. Lagerfeld died in February.
 
Landon Nordeman
Virginie Viard, left, and Karl Lagerfeld at the Chanel Metiers d’Art Fashion Show in New York in December. Mr. Lagerfeld died in February.

In the past several months, Chanel has lost its longtime creative director with the death of Karl Lagerfeld, and has been the subject of continuing takeover speculation involving industry rivals like LVMH Moët Hennessy Louis Vuitton.

But the storied fashion house, owned by the secretive billionaire brothers Alain and Gerard Wertheimer, reported rising profits and revenue on Monday, the second time in two years that the privately held company had issued an annual earnings report in its 109-year history.

Chanel has traditionally shied away from talking publicly about the state of its finances. But the company — best known for distinctive products like its No. 5 perfume, black bouclé jackets, two-tone ballet pumps and an array of quilted handbags — says it has entered a new era of transparency and communications. The figures released Monday showed broad and robust growth across product sectors and regions, and a significant increase in investment.

Total sales for the 2018 calendar year were US$11.1 billion (S$15.1 billion), up 10.5 percent from the previous year on a constant-currency basis. Growth was driven primarily by customers in the Asia Pacific region, where sales reached US$4.73 billion (S$6.47 billion), an increase of 20 percent over the same period a year earlier.

Asia is now the most valuable region by revenue for Chanel, eclipsing Europe, where sales reached US$4.28 billion (S$5.85 billion), up 7.8 percent. Overall operating profit came in at US$2.99 billion (S$4 billion), an 8 percent increase from the previous year.

The results showed that Chanel is among the largest luxury brands in the world by revenue, outpacing rivals like Gucci and neck and neck with Louis Vuitton. Philippe Blondiaux, Chanel’s chief financial officer, said the company had doubled its investments in 2018 compared with 2017. The increase, which included revamping Chanel’s global store network, acquiring specialist watchmakers and leather suppliers and introducing new products, underscored the company’s commitment to maintaining its future independence, he said.

A buyout or takeover of any kind, he added, is not on the horizon.

“The work we are doing and investments we are making are all geared toward maintaining the independence of Chanel for centuries to come,” Mr. Blondiaux said. “Would a company preparing itself for a sale invest more than US$1 billion (S$1.36 billion) in 12 months in sustaining creativity and innovation? Or increase its headcount by 14 percent? No.”

He added, “These numbers talk and tell you everything you need to know, which is that we have a strong balance sheet, extremely strong sales growth across all regions and product categories and continue to work extremely well as a private company.”

ChanelModels presenting creations from the Chanel Cruise collection 2020 at the Grand Palais in Paris in May.
Models presenting creations from the Chanel Cruise collection 2020 at the Grand Palais in Paris in May.

Mr. Blondiaux added that Chanel was still mourning the death of Mr. Lagerfeld, one of the most prolific fashion designers of his era. Chanel’s creative director since 1983, he died in February. His successor is Virginie Viard, his right hand for more than 30 years. She presented her first solo collection for the house in Paris last month. Mr. Blondiaux said the company was in good creative hands as it entered its next phase.

“Virginie was and is our only choice,” he said. “She knows this house and its codes, and we have every confidence in her capabilities, both now and in the future.”

He added: “We do not expect any kind of impact on our financials as a result of the death of Mr. Lagerfeld.”

All eyes will now be on Ms. Viard to see whether she can extend what has been one of the modern luxury industry’s longest bull runs ever, and whether she will choose to make her own mark on the brand or remain a low-key, behind-the-scenes presence. A memorial service for Mr. Lagerfeld will be held at the Grand Palais in Paris — the site of many of his most extravagant and famous fashion shows — on Thursday.

Chanel’s results for 2018 noted growth in the company’s three core product categories: fragrance and cosmetics; fashion; and watches and fine jewellery. Most fashion product lines achieved double-digit growth, and the capsule collections Coco Beach and Coco Neige proved to be particularly popular.

The company spent US$1.65 billion (S$2.25 billion) on media and marketing campaigns, fashion shows and events, a 9 percent increase. It attributed the uptick to the introduction of high-profile beauty items like the Coco Mademoiselle and Bleu de Chanel fragrances and its first skin care line for men.

Chanel was founded by Coco Chanel, an aspiring actress and seamstress, with the opening of a small millinery boutique in Paris in 1910. The Wertheimer family acquired its controlling stake in 1924, when Pierre Wertheimer signed a deal with Chanel to make her No. 5 perfume in his Bourjois factory in return for 70 percent of the profits.

Chanel will show its next haute couture collection in Paris at the beginning of July.