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LVMH: Luxe is Prospering Once More

PARIS -- The luxury goods industry is back on a roll, according to Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton.<BR><BR>Speaking at a meeting for financial analysts here, Arnault said that group sales should grow at a steady clip, and...

PARIS — The luxury goods industry is back on a roll, according to Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton.

Speaking at a meeting for financial analysts here, Arnault said that group sales should grow at a steady clip, and that this year’s net profits should rise 20 percent, thanks to a turnaround in consumer buying.

“Since the middle of 1993, we have been starting to come out of this recessionary phase, which started with the Gulf crisis and war in 1991,” Arnault told analysts here last Thursday.

Last year for LVMH “finished well, given that the consumer has become more demanding, and no longer has an uncontrollable appetite for luxury goods,” Arnault said.

As reported, LVMH’s net earnings before nonrecurring gains last year slipped 1.3 percent to $514.5 million (2.97 billion francs) at current exchange rates. However, extraordinary gains of $104.3 million (602 million francs), mainly from last year’s sale of the Roc cosmetics business to Johnson & Johnson, pushed 1993’s final profit to $618.4 million (3.57 billion francs).

Consolidated sales jumped 10 percent to $4.12 billion (23.8 billion francs), and sales growth has continued into 1994, with consolidated sales up 28 percent through February — or 20 percent at constant exchange rates.

Arnault attributed LVMH’s sales progress in a tough international economy to a focus on quality and price ratios, keeping a steady eye on image, strong advertising and promotional activities.

Arnault also spent time discussing the various rumors of acquisitions that LVMH might be considering.

Many industry observers have speculated that Arnault would grow LVMH through purchasing other luxury goods companies, especially in light of the roughly $1.91 billion (11 billion francs) on LVMH’S balance sheet from Guiness’s purchase of 34 percent of LVMH’S wine and spirits businesses and the group’s resultant restructuring.

The Paris financial rumor mill has in recent weeks singled out L’Oreal, Elf Sanofi and Guerlain as acquisition targets. Speculation about L’Oreal came up because the longstanding agreement between L’Oreal’s majority shareholder, Gesparal, controlled by Liliane Bettencourt, and Nestle, which holds 49 percent of Gesparal, to maintain their percentage holdings, expires March 26.

But Arnault flatly denied any interest in L’Oreal, the world’s largest cosmetics and perfumes group.

“I have not heard that L’Oreal is interested in selling,” he said, “but if it were, I doubt if it presents any synergies for us. It is focused [a lot] on the mass market.”

The beauty division of Elf Sanofi, the cosmetics and pharmaceutical arm of French petroleum giant Elf Acquitaine, has been mentioned as a possible takeover target since Elf chairman Philippe Jaffre has emphasized his goal of focusing Elf on its core businesses.

While Arnault responded that he didn’t see an interest among Elf shareholders to sell off the beauty division, he acknowledged that the beauty brands in Elf Sanofi, which include Yves Saint Laurent, Oscar de la Renta and Van Cleef, enjoy selective distribution, and as such could offer synergies with LVMH’S current beauty activities, in contrast to the bulk of L’Oreal brands.

As for Guerlain, Arnault said that LVMH’S 15 percent stake in the family company implies that LVMH “cannot be indifferent” to Guerlain’s future. Arnault did not comment further, nor did he deny an interest in acquiring the company.

However, he stressed that no acquisitions are planned for the immediate future, even though LVMH is studying a few possible candidates.

“We are not in a hurry” to buy other companies, Arnault stated. He emphasized that any potential acquisition would be along the lines of last year’s purchase of Kenzo. The company would have to be one whose products are at the same level of prestige as those of LVMH and are strong performers internationally; the company would also have to have financial results that could improve from being within LVMH.

Arnault said he would focus the group’s growth internally by exploiting synergies among LVMH companies to improve economies of scale. He cited as examples Kenzo’s Paciflor ready-to-wear division, which now holds the license to manufacture — but not distribute — Christian Lacroix’s new Bazar rtw collection, and Louis Vuitton’s international license to make and distribute a line of Lacroix leather goods for wider distribution.

These kinds of synergies could theoretically be applied to Celine, which will be fully acquired by LVMH from Au Bon Marche — another piece of Arnault’s financial empire — some time this summer. Again denying that Celine is up for sale, Arnault said that Paciflor could conceivably work with Celine on rtw, but said that no plans have been discussed.

He also said that once a part of LVMH, Celine would likely launch a perfume with one of the LVMH fragrance companies. But Celine’s fragrance partner has not been decided, and a perfume will not be launched before 1996, Arnault said.

Other examples of synergies in the group involve Kenzo perfumes, which will be distributed in the U.S. using Parfums Givenchy’s distribution network. The perfumes will hit the U.S. market during the last quarter of this year, in time for holiday sales, Arnault said.

Parfums Kenzo, whose sales will be fully consolidated into LVMH results this year, boasted a sales increase of 42.1 percent last year to $51.4 million (297 million francs).

Kenzo’s rtw will also be brought to the U.S. market with a more serious distribution effort in 1995, but Arnault said that Kenzo’s partner at LVMH for this effort has not yet been chosen.

Sales growth within LVMH beauty divisions was strong last year. Parfums Dior reported sales growth of 13.5 percent last year to $741.1 million (4.28 billion francs), fueled in part by the successful European launch of Dior Svelte body contour creme. Last year, the 1.5 million units of Svelte sold generated sales of $26.7 million (154 million francs). Svelte has just started to be marketed in the U.S.

In January, the line bowed in the 39 doors of Burdines in Florida and is now on sale in Bloomingdale’s in New York. Svelte’s next market Will be California.

Parfums Dior president Maurice Roger said he had no sales projections as “the market for this kind of product doesn’t exist in the U.S. yet.” He noted that two thirds of the women who bought Svelte in Florida had never used a contour creme before. The Svelte success, coupled with the European launch of the Hydra-Starfacial moisturizer line, helped Dior’s skin care sector grow 42.2 percent last year.

In 1993, women’s perfumes represented 33 percent of Parfums Dior sales; men’s fragrances represented 17 percent; makeup, 30 percent, and skin care represented 20 percent of sales.

Parfums Dior also benefited last year from continued success of Dune women’s perfume and Fahrenheit men’s fragrance. Sales for Dune, launched in 1991, rose 16.4 percent to $118.3 million (683 million francs), while those for Fahrenheit, launched in 1988, also rose 16.4 percent to $84.9 million (490 million francs).

“We would have to fall in a deep sleep for our competitors to catch up with us,” Roger said in comparing the double-digit growth at Parfums Dior to the single-digit growth of companies like Lancome and Guerlain.

At the smaller Parfums Givenchy division, sales rose 20.2 percent to $214.8 million (1.24 billion francs), thanks mainly to the successful launch of the Insense men’s line. Insense, which came on the European market last September, garnered sales of $18.7 million (108 million francs) in its first four months.

Sales figures were not broken out among LVMH’s fashion businesses. However, group financial director Patrick Houel noted that Givenchy had a profit last year, while Lacroix did not.

In the leather goods category, which includes Louis Vuitton Malletier and the Spanish firm Loewe International, sales last year benefited from strongly improved performance of the Louis Vuitton monogram collection, and the successful launch of the Alma line and the Taiga men’s line, as well as the introduction of the new yellow color, called tassili, for its grain leather Epi collection.

Vuitton opened 10 new Vuitton stores last year in such cities as Manila, Antwerp, Naples, Nuremberg, Stuttgart and Kaohsiung in Taiwan. The company hopes to open 10 to 12 new stores this year, said Vuitton president Yves Carcelle. Vuitton also renovated or expanded 25 existing stores. Last year, Vuitton had some 180 stores around the world, Carcelle noted.

Arnault pointed to the U.S. and Southeast Asia — exclusive of Japan — as growing markets for the group. He expects that the sluggish Japanese market, where LVMH adjusted prices downward on a variety of its products last year, will start to turn around in 1995.

Last year, 85 percent of sales were realized outside of France. In the U.S., sales rose 10 percent, accounting for 13 percent of total group revenues. LVMH’S biggest export markets are Europe — excluding France — claiming 22 percent of sales, and Japan, which garnered 24 percent of sales, despite a sales drop there of 26 percent last year at current exchange.