PARIS — Let private equity funds overspend on acquisitions. Bernard Arnault said he prefers to bank on the stars, both proven and budding, already in his LVMH Moët Hennessy Louis Vuitton luxury empire.
"We have the potential to double our performance on a like-for-like basis in the next five years," he said Wednesday in reporting a 30 percent leap in 2006 net profits to 1.88 billion euros, or $2.36 billion, as LVMH revenues rose 10 percent to surpass the 15 billion euro threshold to 15.31 billion euros, or $19.23 billion. Currency conversions were made at average exchange rates for the period.
"We have an optimized portfolio.…It's certainly not a favorable environment to make acquisitions," said Arnault.were made at average exchange rates for the period. "We have an optimized portfolio.…It's certainly not a favorable environment to make acquisitions," said Arnault. Despite an unfavorable currency environment and worries about Japan, an upbeat Arnault said he was "very sanguine" about 2007, especially given the growing appetite for luxury worldwide. Operating profits at LVMH's watches and jewelry division skyrocketed 281 percent last year to 80 million euros, or $100.5 million, while China advanced to become the group's fourth-largest market for wines and spirits, where Hennessy cognac already enjoys a 50 percent market share. "We are expecting a year of sustained growth — significant growth in all likelihood," Arnault told an audience of analysts and journalists at LVMH's art-stuffed headquarters here, where he unveiled the results after the close of trading on the Paris Bourse.Worries about weak consumer spending in Japan and consolidation in the beverage sector bounced off Arnault like light off his skinny, iridescent Dior Homme tie. Peppered with questions about Japan, the LVMH chief allowed that "we are looking at a flat performance for Louis Vuitton in Japan. We'll see if we can do better than that." But he stressed that "growth is a dynamic around the world" and asserted that gains in the United States, Europe, Asia and other emerging markets would make up for what he characterized as "relative, but provisional weakness in Japan." In local currency, sales of fashion and leather goods eked out a 1 percent increase in Japan last year, trailing gains of 9 percent in the U.S., 18 percent in Europe and 19 percent in Asia. Yves Carcelle, chairman and chief executive of Louis Vuitton, insisted Japan is not a mature market, but an increasingly segmented one. He noted that while product initiatives in 2006 were concentrated on the high end, other market sectors would be addressed this year. Carcelle said sales were more than 20 percent above plan in the new markets Vuitton entered last year: Norway, Ukraine and Hungary. "The market was waiting for it," he said, noting Vuitton is scouting locations for more units in provinces in the Ukraine and Russia. Carcelle also highlighted "spectacular" growth at Fendi across all product categories, "strong growth" at Marc Jacobs and the success of Donna Karan's luxury collection line and Gold Donna Karan perfume. LVMH trumpeted double-digit gains in operating profits for all business groups last year: up 11 percent to 962 million euros, or $1.21 billion, for wines and spirits; 11 percent for fashion and leather goods to 1.63 billion euros, or $2.05 billion; 28 percent in perfumes and cosmetics to 222 million euros, or $278.9 million, and 15 percent in selective retailing to 400 million euros, or $502.5 million. Arnault noted that Christian Dior's beauty business has become "substantially more profitable." Upcoming projects for the perfumes and cosmetics division include new women's fragrances for Dior and Fendi. Louis Vuitton, Parfums Christian Dior, Moët & Chandon, Hennessy and Tag Heuer rank among the group's most profitable brands, Arnault said, vowing that smaller ones would also quickly become more profitable. Talk of possible acquisitions — especially with LVMH's net debt down to 3.4 billion euros, or $4.27 billion, for a gearing of 29 percent — or disposals peppered Arnault's address and the question-and-answer period. He boasted that Sephora, once derided as an albatross the group should shed, has become such a success it is now attracting suitors. "We've been offered more than 1 billion euros [$1.25 billion] for Sephora, but we're not interested," he said. "We are a long way from the full potential." LVMH plans to add some 40 Sephora locations in China next year, and accelerate the pace of openings in France and China. Arnault brushed off suggestions LVMH might be interested in bidding on the vodka brand Absolut, and, asked if he might get rid of some fashion brands that continue to underperform, he replied that any adjustments to his brand stable "will be marginal, indeed." He also quelled market worries that LVMH's ties with its British spirits partner Diageo were strained, saying "we have excellent relations." Separately on Wednesday, Christian Dior SA, parent of LVMH and Christian Dior Couture, reported a 29 percent rise in net profits to 797 million euros, or $1 billion. Profits at the Dior fashion house rose 5.7 percent to 56 million euros, or $70.3 million, reflecting heavy investments in its store network, which grew by 21 locations to 215 units last year. Dior chief executive Sidney Toledano said sales accelerated last year, with an 18 percent increase at constant exchange rates in the fourth quarter. Sales for the full year rose 10 percent to 731 million euros, or $918.3 million. Toledano cited strong gains in fine jewelry, footwear, men's wear and leather goods, particularly the Gaucho and Cannage bags, and double-digit gains everywhere except Japan, which logged a single-digit increase in yen terms. "Japan has been flat, but we saw signs of improvement in December and the beginning of the new year," he said. In 2007, Dior plans to open about 15 new locations, including Athens, Riyadh and Jeddah, Saudi Arabia. — With contributions from Jennifer Weil
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