Has the pandemic jeopardized the LVMH and Tiffany $16.3 billion deal?

Tiffany and Co said same-store deals were down 44% in the financial first quarter as the virus-imposed shutdown kept the customers away from their stores across the globe.

CEO of Tiffany & Co, Alessandro Bogliolo believes that in the luxury market of China a robust recovery is underway as its jewelry business in China is slowly rebounding. Tiffany & Co said that its merger with LVMH is clearing a lot of administrative hurdles for them.

As per the financial statements of Tiffany & Co for the fiscal first quarter ended April 30, their total revenue fell 45% to $555.5 million  and they have posted a net loss of $64.6 million from an earning of $125 million in the same fiscal quarter of last year.

As per financial analysts, Tiffany could have earned 3% a share on sales of about $701 million but now after the pandemic it has become difficult. They posted a loss of 53% per share from an earning of $1.03 a share last year.

LVMH is the owner of luxury champagne brands such as Dom Perignon to high-end handbag company, Louis Vuitton. They agreed last year in the month of November to buy Tiffany & Co for $16.2 billion, however as a result of the evaporating sales due to the pandemic, LVMH CEO, Bernard Arnault is looking to lower the price of buying Tiffany & Co. This can be also due to the low share trading price of Tiffany & Co, which is currently at $122.18 per share, while the price that was agreed upon stood at $135 per share. It is pertinent to note that the share price of Tiffany is gradually increasing as the luxury market is rebounding in China, the last rise in share price was seen on Tuesday which was more than 2%.

The risk of COVID-19 is continuing as very few people are visiting the stores word-wide. People are still waiting for the vaccine and this is resulting in very few social gatherings as people are skipping several mega-events where they would generally wear the Tiffany earrings or bracelets, many  high-end wedding events are being kept on hold due to the same reason and all these are directly hurting the bottom-line of Tiffany as they are set to lose more business as a result of shrinking tourists in major US cities like New York.

It is also important to note that, the resurgence of adornments deals in China cannot be an indicator of how clients will react in different nations. Indeed, even prior to the pandemic, Chinese luxury buyers were getting wealthier and driving twofold digit development of Tiffany deals in China.

Bogliolo believes that although Tiffany along with other jewelers  have  been battered by this ongoing pandemic, the brand value of Tiffany & Co is still strong. Prior to the pandemic Tiffany was very focused on expanding its sales in China by they developing new jewelry collections for the Chinese market and investing more on its websites, all these have made Tiffany more resilient.

As per Mark Erceg, CFO of Tiffany,” Tiffany has ample cash in hand and is in compliance with debt covenants, as of April 30.” Tiffany has in fact changed a portion of its obligation understandings and pulled back on capital spending as it explores dubious occasions.

In China, same-store deals were down about 85% and 15% during the first and second months of the first quarter, however sales have bounced by 30% during April and about 90% in May, compared to the same months in last fiscal year. Online business sales have increased by 23% across the globe. That was powered by the U.S. also, United Kingdom, where e-commerce sales were up 14% and 15%, separately. Their now rose gold and gold with diamond has also found a bright spot in terms of sales.

Bogliolo said,” I am confident that Tiffany’s best days remain ahead of us as I am excited, we will be taking the journey with LVMH by our side.”