LVMH Remains Bullish As Profits Climb 46%

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    LVMH Remains Bullish As Profits Climb 46%

    PARIS (September 8, 2006) - The U.S. dollar may be weak, but not enough to dent Bernard Arnault's gold-plated optimism about the high-flying luxury sector.

    "The performance is extremely good. We are very confident in our objectives," the chairman of LVMH Moët Hennessy Louis Vuitton said Wednesday in reporting a 46 percent leap in first-half net profits to 817 million euros, or $1 billion. "The economic environment is mostly positive, even if the dollar is a little lower."

    Looking rested and happy after summer vacation, an upbeat Arnault said organic sales continued to grow at a double-digit pace in July and August, including for the cash-cow Louis Vuitton brand. He also said that a slate of product launches, such as iconic Vuitton leather goods and high-end Tag Heuer watches, would drive sales through the balance of the year.

    "We've increased our market share in all our businesses," Arnault told an audience of analysts and journalists at LVMH headquarters here as images of the company's celebrity-studded ad campaigns flashed behind him on giant screens. "The outstanding performance shows our growth model is particularly effective."

    Operating profits at the French firm increased 35 percent in the half to 1.26 billion euros, or $1.55 billion at average exchange, as sales rose 12.9 percent to 6.97 billion euros, or $8.57 billion.

    Arnault reiterated an objective of a "very significant" increase in results for the full year and trumpeted a goal to double the group's profitability in five years.

    By category, watches and jewelry logged the biggest gains in profits from recurring operations, zooming 164 percent to 37 million euros, or $45.5 million. Perfumes and cosmetics also had a stellar half, with profits up 80 percent to 79 million euros, or $97.1 million, thanks to products such as Dior Capture Totale skin cream, pitched in ads by actress Sharon Stone.

    "You ladies in the room may be too young to try it, but have a go anyway," Arnault said with a sly smile.

    The LVMH chief, who has likened Vuitton to Microsoft, reined in the hyperbole Wednesday, but still touted the "dynamic" wines and spirits business and Vuitton's "remarkable" performance. He also boasted that LVMH shaved 1.3 billion euros, or $1.59 billion, off its debt last year to 4.61 billion euros, or $5.67 billion. "Soon it will disappear at this rate," he quipped.

    However, Arnault made no mention of acquisitions for LVMH. "The best available strategy to us is to strengthen the brands that we own. Many of these brands have enormous potential," he said, mentioning the likes of Loewe, Pucci, Celine and Donna Karan.

    During a brief question-and-answer session, Arnault initially skirted questions about Donna Karan, where a management change is expected and brand rejuvenation has been slow.

    "A number of plans are in the cards. At this stage, we're just talking, so we're not in a position to disclose any details," he said. Later, he added, "Donna Karan can become a Ralph Lauren. There are only three star brands in the United States, and that is surely one of them."

    Praising Karl Lagerfeld's design prowess at Fendi, he said the Roman house would continue to improve its profitability as store renovations and strong collections of ready-to-wear and handbags goose sales. "Very soon we will top the 20 percent mark of profitability," Arnault said.

    Profits in the fashion and leather goods division rose 13 percent in the half to 742 million euros, or $912.4 million.

    Arnault's other principle boast was that LVMH shelters the best collection of luxury managers in the industry, which is why unspecified competitors continue to try, albeit unsuccessfully, to poach them. "And when they succeed in taking anyone away from us, it's not necessarily the right people," Arnault said, prompting a round of knowing chuckles among the LVMH brass.

    Highlighting a strong performance by Sephora in Europe and the U.S., LVMH said profits in the group's selective retailing division rose 24 percent to 147 million euros, or $180.8 million.

    Antonio Belloni, group managing director, said LVMH would seek to minimize the impact of increased security measures at airports that have dented sales of duty free liquors and perfumes, but did not give specifics. Meanwhile, the French group is aiming to capture the fast-growing Chinese clientele and upgrade its product assortments, he added.

    Analysts voiced concern about a dip in profitability in the wines and spirits division, where profits from recurring operations gained 11 percent to 355 million euros, or $436.5 million. LVMH blamed this on currency effects and higher investments in markets such as China.

    But overall, the numbers, released after the close of trading on the French Bourse, met market expectations.

    In previews of the results, analysts highlighted an easy base of comparison, given major investments last year in the giant Vuitton flagship in Paris, a positive benefit from currencies and a charge last year related to the closing of the Samaritaine department store for safety improvements.

    Analysts are expecting a strong earnings season from European luxury firms, and believe the sector will be resilient to a potential slowdown in the global economy.

    However, the currency situation has become less favorable and the U.S. dollar and Japanese yen are weaker against the euro, warned HSBC analysts Antoine Belge and Erwan Rambourg in a recent note.

    "The luxury goods industry should continue to demonstrate its ability to outperform most consumer and retail segments owing to its lower correlation with GDP," the HSBC report said.

    But the sector is exposed to dollar-pegged economies and Japan "in terms of sales, while costs are mainly denominated in euros and Swiss francs."

    Separately on Wednesday, Christian Dior SA, parent of LVMH and Christian Dior Couture, reported earnings largely in line with LVMH's. The Dior fashion house said operating profits in the half totaled 8 million euros, or $9.8 million, reflecting heavy investments in eight new boutiques and an unfavorable currency situation.
  2. he he...congrats to LVMH!! I wonder how much of their profit is tPF's doing?
  3. guess we've been doing our part
  4. Both my boses CFO and my Controller came from LVMH just about 2 years ago and they HATED it there. I should definite pass along this article.