By  on April 26, 2007

PARIS — Consumers continue to have Champagne tastes and budgets to match.

Citing robust sales of expensive liquors, checkered handbags and sport watches, LVMH Moët Hennessy Louis Vuitton said first-quarter sales jumped 7 percent, to 3.8 billion euros, or $5.03 billion, from 3.56 billion euros, or $4.27 billion. Stripping out the impact of exchange rates, the increase stood at 13 percent.

Currency conversions were made at average exchange rates for the respective periods.

"Despite an unfavorable currency environment, we remain very optimistic," Jean-Jacques Guiony, LVMH's finance director, told analysts during a conference call on Wednesday. "None of our markets are showing any signs of slowing down."

He cautioned, however, that capacity constraints, particularly in wines and spirits, could constrain growth for the balance of the year.

The French luxury giant trumpeted double-digit organic growth across all business groups for the three months ended March 31, and sales momentum in line with the fourth quarter of 2006.

Guiony declined to indicate sales trends for April, but stressed the U.S., Asia and Europe performed particularly well in the quarter. "We see no signs of slowing down in the U.S. for the time being," said Guiony, noting sales of Vuitton products accelerated in that market during the first quarter.

In local currency, sales of fashion and leather goods jumped 14 percent in the U.S., and watches and jewelry climbed 32 percent. Overall, U.S. sales rose 12 percent.

Analysts applauded the strong numbers, which beat expectations, while citing concerns about soft sales in Japan, particularly for the cash-cow Vuitton brand.

Guiony said sales gains for Vuitton were double-digit in all markets except Japan, where first-quarter sales were "slightly" negative. "We expect sales to be flattish in Japan in 2007," he added.

Analysts questioned Vuitton's ability to continue raising prices in Japan to compensate for the weakness of the yen. Guiony suggested any future increases would be applied to more expensive products, as opposed to entry-level items. "I think there's a limit where entry-level price points are concerned," he noted.

By division, reported sales advanced 9 percent for wines and spirits, to 689 million euros, or $902.9 million; 3.9 percent in fashion and leather goods, to 1.35 billion euros, or $1.76 billion; 11.1 percent in perfumes and cosmetics, to 663 million euros, or $868.8 million; 20 percent in watches and jewelry, to 189 million euros, or $247.7 million, and 5.1 percent in selective retailing, to 941 million euros, or $1.23 billion.In fashion and leather goods, LVMH noted strong momentum at Vuitton, with the Damier Azur, Monogram Riveting, Dentelle and Monogram Vernis Pomme d'Amour lines were among the outstanding products.

Fendi also logged double-digit revenue growth in Europe, the U.S. and Asia, thanks to its B-Mix handbag range and "good progress" with ready-to-wear and shoes.

LVMH cited "good momentum" at other brands, in particular Marc Jacobs. Other names in the group's fashion stable — which include Pucci, Donna Karan and Loewe — received scant mention.

Analysts were struck by the effervescent performance in the drinks division; Champagne volumes were up 8 percent and Hennessy cognac volumes rose 18 percent and there was fast development in China and Russia.

Strong growth in fragrances and skin care at Christian Dior and Guerlain led a 15 percent organic sales gain in the perfume and cosmetics division. LVMH also had success with Givenchy's Ange ou Démon, particularly in France and Russia.

The watches and jewelry group, with a 27 percent organic revenue gain, outpaced the sector, with double-digit increases for TAG Heuer, Zenith and Dior watches. TAG's Caliber S style and Dior's Christal models with rubber bracelets were among standouts in the quarter.

In selective retail, strong flows of Chinese tourists offset limited spending by Japanese visitors in their usual haunts of Hawaii, Guam and Saipan. At Sephora, same-store sales grew 8.5 percent in Europe and 10 percent in the U.S., Guiony said.

Sales in Europe were robust across all categories: up 34 percent in watches and jewelry; 23 percent in wines and spirits; 20 percent in perfumes and cosmetics, and 11 percent in both selective retail and fashion and leather goods. Sales in local currency in Asia rose 14 percent, while Japan slipped 2 percent.

Guiony was asked to comment on reports LVMH may acquire a 20 percent stake in Hidesign, a leather goods maker in India. He replied, "I don't think it's worth commenting on.…It's a small business. I think it should be below your radar screen."

However, he acknowledged that Vuitton was encountering capacity issues with footwear in Italy, and "India could be a solution."Shares in LVMH rose 1.9 percent Wednesday to close at 86.71 euros, or $115.32 at current exchange, on the Paris Bourse.

Separately on Wednesday, Christian Dior SA, parent of LVMH and Christian Dior Couture, reported a 7.2 percent increase in first-quarter sales, to 3.98 billion euros, or $5.22 billion, up from 3.72 billion euros, or $4.47 billion.

Led by strength in Europe and lusty demand for fine jewelry, sales at the Dior fashion rose 12 percent, to 184 million euros, or $241.1 million, or 16 percent at constant exchange.

"It was a good quarter," said Dior president and chief executive Sidney Toledano. "All categories have been good; bags, shoes."

Toledano just returned from Japan, where Dior christened a freestanding store in Nagoya, and noted the brand was logging double-digit growth in that country.

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