PARIS — An upbeat Bernard Arnault on Wednesday played down worries about a U.S. recession as the luxury juggernaut rolled on, sending net profits at LVMH Moët Hennessy Louis Vuitton up 8 percent last year to surpass the 2 billion euro threshold.
"We are relatively confident regarding the year 2008," Arnault said as the group reported net profits totaled 2.03 billion euros, or $2.78 billion at average exchange. He characterized the impact of a U.S. recession as "limited, weak or even non-existent" for the world's biggest luxury player.
"The clientele we deal with is far less affected by short-term economic slumps," he said, anticipating perhaps "one or two quarters" of recession in the U.S. with a probable recovery in 2009. He also forecast an easing of the currency woes that shaved 255 million euros, or $349.4 million, off LVMH's 2007 operating profits, which totaled 3.56 billion euros, or $4.87 billion, up 12 percent year-over-year.
But Arnault could not be pinned down to more specific sales or earnings guidance for 2008 other than "tangible growth" in results.
Addressing analysts and journalists at LVMH's art-stuffed headquarters here, Arnault acknowledged the credit crunch, slumping stock prices and an unsettled economic climate, but said they are "not likely to lead to major consequences." At one point, he joked that traders celebrate with Champagne on good days and drown their sorrows with it on bad ones, boding well for his fortunes either way.
Indeed, meeting surging demand for luxury goods seemed a more pressing concern, given sustained growth in Europe and the U.S. and explosive momentum in emerging markets like China, Russia and the Middle East.
"We just need more grapes to put in our bottles," Arnault said, also citing early sellouts and lengthening waiting lists for Vuitton leather goods designed in collaboration with artist Richard Prince.
Robust sales of fine wines, checkerboard-patterned leather goods and luxury skin creams sent 2007 revenues up 8 percent to 16.48 billion euros, or $22.58 billion. Stripping out the impact of currency exchange, sales rose 19 percent for watches and jewelry, 14 percent for fashion and leather goods, 13 percent for wines and spirits and 12 percent for perfumes and cosmetics and selective retailing. All currency conversions were made at average exchange rates for the year.The picture was just as rosy for operating profits, up 76 percent for watches and jewelry, 15 percent for perfumes and cosmetics, 12 percent for fashion and leather goods and 10 percent for selective retailing and wines and spirits.
LVMH did not break down sales by quarter, but calculations indicate totals in the fourth quarter stood at 5.04 billion euros, or $7.29 billion at average exchange rates, up 7.6 percent from a year ago.
Arnault called December "a good month," including in the sluggish Japanese market, and said January sales were "fully in line with the end of the year, with double-digit organic growth for the group and very strong double-digit growth for Louis Vuitton."
Looking relaxed and happy, Arnault smiled when a reporter asked him — given that LVMH just acquired French financial daily Les Echos from Britain's Pearson plc — if the group might also be interested in owning the Financial Times.
"I would love to," he responded in English. "But I think it's probably too expensive for us."
The luxury titan downplayed the likelihood of acquisitions, even if LVMH's net debt was whittled to 3.09 billion euros, or $4.24 billion, last year, and valuations are dropping in a weak market. Arnault stressed potential targets would have to be "irresistible" to tempt him.
He also denied having any interest in acquiring a stake in Groupe Clarins, which has reportedly been in play, and said LVMH would not bid for the Absolut vodka brand.
Instead, Arnault trumpeted the growth last year of smaller fashion brands like Celine, Berluti and Givenchy and said LVMH would strive to double its value and profits in the next five years.
"Internal growth prospects of the group are very good," he said. "I fail to see why our company should be classified as cyclical given the regularity of [strong] results we post year after year."
Arnault cited accelerating profitability at Fendi and added that Loewe, whose new creative director is Vuitton alum Stuart Vevers, has the potential to reach sales of up to 500 million euros, or almost $750 million, given high growth rates in Japan. A new boutique concept by architect Peter Marino is in view for the Spanish brand.By region, LVMH's overall sales last year rose 15 percent in the U.S. in dollars; 3 percent in Japan in yen, and 11 and 14 percent respectively for Europe and Asia in euro terms.
The company trumpeted market share gains for Tag Heuer, Parfums Christian Dior and Sephora, and effervescent growth in wines and spirits across all geographies and product categories.
Looking ahead, Arnault said LVMH would stoke demand via product innovations, including Tag Heuer's foray into cell phones, Christian Dior makeup inspired by John Galliano's fantastic couture creations and high-end beauty products for Guerlain as it marks its 180th anniversary.
The company also plans to continue building its worldwide network of stores.
Plans call for more than 100 new Sephora locations in 2008, after opening 135 perfumeries last year and entering nine new countries with the banner. DFS, which derives 80 percent of its revenues from luxury products, is opening its Macao Galleria and a concession in the Mumbai airport. Louis Vuitton, meanwhile, which ended 2007 with 390 locations, plans to open boutiques this year in Finland, Romania, Qatar and Bahrain — along with a Hong Kong unit that will be the brand's second-largest boutique in the world after Paris.
Louis Vuitton chief executive Yves Carcelle noted the company logged its fastest growth last year in Vietnam, and he cited an excellent performance of accessories, including belts, in addition to Damier Azur leather goods and the Beverly, Riveting and Neverfull handbag styles in its signature monogram canvas.
Financial documents released in tandem with the results disclosed that LVMH increased its stake in Fendi in May to 100 percent from 94 percent at a cost of 66 million euros, or $90.4 million. No other details were provided, but it is understood Carla Fendi tendered her shares in the Roman fashion and leather goods firm.
Shares in LVMH gained 1.05 percent to close at 69.71 euros, or $102.12, at current exchange in trading on the Paris Bourse.
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