By  on September 8, 2005

PARIS — Neither "shoddy" counterfeit handbags nor currency gyrations can dent Bernard Arnault's bullish outlook on luxury.

Citing a 19 percent leap in first-half net profits to $719.1 million, or 559 million euros, and "dynamic" sales over the summer months, the LVMH Moët Hennessy Louis Vuitton kingpin expects an even stronger finish for the year.

"We are very optimistic for the second half," an upbeat Arnault told a packed audience of analysts and journalists Wednesday at LVMH's art-stuffed headquarters, two new Takashi Murakami sculptures flanking the entrance.

Currency impacts shaved 149 million euros, or $191.7 million, from the bottom line in the six months ended June 30, but Arnault said he expects a more favorable exchange rate environment for the balance of the year. Currency conversions were made at average exchange rates for the period.

"I'm optimistic in as much as I hope the dollar won't come down again," he said.

Arnault boasted that high-flying Louis Vuitton, the cash cow of the group, continued to post "exceptional" double-digit growth in July and August. And even if the company is struggling to meet demand for hot products such as its denim handbags with the famous monogram, "we are very confident regarding the growth of Louis Vuitton."

Vuitton chief executive Yves Carcelle said the company would be able to triple quantities of denim bags delivered to stores this fall to ease waiting lists. He characterized the denim range as a major opportunity for the brand.

What's more, he noted: "Nowhere have we found a single counterfeiter capable of producing denim that is jacquard and stonewashed [like ours]."

LVMH results were largely in line with consensus expectations and analysts smiled on Arnault's positive tone.

The French luxury giant said it took a 147 million euro, or $189.1 million, nonrecurring charge in the first half related to the closing of its Samaritaine department store, which was shuttered last June when safety inspectors discovered structural problems and fire risks. Excluding that impact, net profits would have rocketed 38 percent.

Operating profits from recurring operations rose 11 percent to 1.09 billion euros, or $1.4 billion, up from 982 million euros, or $1.21 billion, a year ago. As reported, sales in the half grew 10 percent to 6.17 billion euros, or $7.78 billion.During a brisk address against a bright yellow backdrop, Arnault reiterated the group would continue to invest in its star brands — "where growth is assured and where profit is at its best" — while taking it slow with smaller names until the product and retail mix are right.

Arnault also alluded again to the possibility of acquisitions, saying: "There may be opportunities to be seized around new products or with other brands."

Fendi, which recently renewed the employment contract of Karl Lagerfeld and christened a new-look Rome flagship, received considerable praise from Arnault, who cited sales growth in excess of 50 percent in some stores. "Results are becoming very significant," he said, vowing that Fendi would become a leading Italian leather goods firm "in the next few years."

Other brands LVMH considers to have high potential include Marc Jacobs, Pucci, Loewe and Berluti.

Meanwhile, Carcelle cited "encouraging" progress at Donna Karan, which continues to trim its distribution and fine-tune product lines. He characterized the balance of the year as the start of recovery for the New York-based fashion house.

Hard hit by currency fluctuations, wines and spirits was the only division to report a drop in operating profits, down 6.4 percent to 321 million euros, or $412.9 million. Operating profits for fashion and leather goods increased 4.5 percent to 654 million euros, or $841.3 million, with perfumes and cosmetics advancing 33.3 percent, thanks to rapid growth of Christian Dior in Asia and Europe and improved profitability at Guerlain.

Arnault cited a "continued recovery" in the watch and jewelry division, which posted a 14 million euro, or $18 million, profit in the half versus a 1 million euro, or $1.2 million, loss a year ago. LVMH cited "excellent" results at Tag Heuer, with its Tiger Woods-promoted golf watch selling out shortly after launch, and Zenith soaring, thanks to a lofty market segment for watch connoisseurs.

Arnault also said Sephora has become a "very substantial profit center" in the U.S., which helped drive a 70 percent increase in operating profits to 119 million euros, or $153.1 million, in the half.

Shares in LVMH inched up 1.1 percent Wednesday to close at 67.10 euros, or $83.20, on the Paris Bourse.

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