LVMH Upbeat During Economic Downtown

Worried about the impact of the financial storm on luxury sales, analysts on Friday peppered LVMH executives with questions.

Vuitton’s leather sales grew less quickly in the third quarter than in the first half.

PARIS — Worried about the impact of the financial storm on luxury sales, analysts on Friday peppered LVMH Moët Hennessy Louis Vuitton executives with questions about how the bellwether French firm was performing.

This story first appeared in the October 13, 2008 issue of WWD.  Subscribe Today.

In a conference call with investors, LVMH finance director Jean-Jacques Guiony said business is holding so far, even if growth was not as brisk as earlier this year. LVMH reported a 4.5 percent increase in sales for the first nine months of the year to 11.96 billion euros, or $17.94 billion.

He said Louis Vuitton last week logged retail sales growth of 12 percent. His comments helped send LVMH stock surging into positive territory after trading in the red for most of the day. Shares in the French luxury firm closed up 2.2 percent as the overall CAC40 index of top French companies lost close to 10 percent.

Guiony said LVMH sales in September were relatively strong after some weakness in August, particularly in Asia, which LVMH attributed to a disruption in its Chinese business linked to the Olympic Games. He said the U.S. was holding up, as well.

“I didn’t say September was fantastic,” stressed Guiony. “But it was much better than August and more or less in line with July.”

Even if the Vuitton brand remained robust, watches raised alarm from some analysts. Sales of watches declined 2 percent on a like-forlike basis, according to an investment note from HSBC analyst Antoine Belge. LVMH said watches had 4 percent organic growth in the quarter.

“Sales of watches did not slow down, but collapsed,” said Belge in the report.

Guiony said much of the deceleration came from declines in Tag Heuer’s lower-end watches. Sales of watches fell midsingle digits in the U.S. and in Japan during the quarter, Guiony said.

He said sales of watches in Asia grew 20 percent in local currency, and in Europe, grew about 10 percent. Guiony said watch sales were suffering most in the U.S. and that business looked “particularly difficult” going forward.

“We are in a strange situation,” said Guiony, noting that sell-out rates of watches were higher than sell-in rates. He attributed the situation to retailers facing cash difficulties and becoming overly cautious. “It’s more a lack of confidence from retailers,” said Guiony.

Despite obvious uncertainty about the future market, Guiony painted an overall confident picture for the resilience of luxury sales.

He said the workhorse Vuitton brand logged double-digit organic revenue growth through the first nine months of the year, and that the overall fashion and leather goods division, with ranges from Celine to Givenchy, had 9 percent organic growth in the third quarter.

Nonetheless, fashion and leather sales grew less quickly in the third quarter than in the first half, when growth was 14 percent. The division’s sales grew 17 percent in the U.S. in dollar terms, 29 percent in Asia in local currency and 9 percent in Europe. Only in Japan were sales negative. “The quarter was a good ride for Vuitton,” said Guiony.

He said emerging markets had shown no signs of slowing after some decline in Asian markets due to the Olympics. Guiony said Russia was “still doing extremely well — there were no worrying signals in the quarter.” He said China and the Middle East also continued robust. By region, revenues in the first nine months gained 9 percent in the U.S., 22 percent in Asia and 9 percent in Europe. Sales in Japan, due to “ongoing challenges,” fell 7 percent. Sales of perfumes and cosmetics gained 7 percent in the quarter on “good momentum” in the U.S., where they gained 16 percent in dollar terms, and 25 percent growth in Asia. Fashion and leather goods grew 9 percent in the quarter, with dollar sales in the U.S. growing 17 percent. Sales advanced 29 percent in local currency in Asia, and results in Japan were negative.

Selective retailing sales gained 7 percent in the quarter, led by 14 percent growth in the U.S. and 13 percent growth in Europe. Sales in Asia edged ahead 8 percent.

Separately on Friday, Christian Dior Couture said sales in the first nine months totaled 564 million euros, or $858.7 million, an increase of 3.5 percent at constant exchange rates. Christian Dior SA, parent of the Dior fashion house and LVMH Moët Hennessy Louis Vuitton, also confirmed its objective of tangible growth in 2008.