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Luxe Firms Claim to Be Open Books

PARIS — Transparency is suddenly the hottest look in luxury — and we’re not talking chiffon blouses.<br><br>Rather, in the wake of LVMH Moët Hennessy Louis Vuitton’s $100 million lawsuit against investment firm Morgan...

PARIS — Transparency is suddenly the hottest look in luxury — and we’re not talking chiffon blouses.

Rather, in the wake of LVMH Moët Hennessy Louis Vuitton’s $100 million lawsuit against investment firm Morgan Stanley, which came to light last week, luxury firms are now jockeying for the right to boast they are the most forthcoming with financial and strategic information.

Archrivals LVMH and Gucci Group are at the focal point of the debate — an offshoot of the LVMH case, which charges Morgan Stanley’s equity researchers of bias and conflict of interest in its ratings and comments on LVMH. Morgan Stanley’s investment bankers advise Gucci on acquisitions and other financial matters.

Gucci took sharp exception to remarks in these columns last week by an unidentified analyst who lamented that Gucci and LVMH tend to share information mostly on their flagship brands, while lumping together results on smaller brands or recent acquisitions.

Not so, according to Gucci Group.

“Gucci is unbelievably transparent,” stressed group chairman and chief executive Domenico De Sole, noting that the group isn’t involved in any lawsuits against investment banks or equity researchers.

“We believe that we provide the market with lots of information about the performance of our group,” a Gucci spokesman added. “We give sales and profits for the Gucci brand in a way that no other company is doing.”

For example, he said, Gucci not only details sales and profits quarterly, but also gives breakdowns by geographic region, product category and distribution channel, too.

“LVMH does not disclose revenues for Louis Vuitton on a comparable basis,” the Gucci spokesman said. “On top of that, we also disclose lots of information on Yves Saint Laurent and for YSL Beauté. I think analysts understand that we provide a lot more information.”

The spokesman noted that the Gucci brand, YSL Rive Gauche and YSL Beauté account for roughly 90 percent of group revenues — and most of the profits.

As a French company, LVMH discloses sales and earnings twice a year, grouping its figures according to business activity, ranging from wines and spirits to selective retailing. Brands including Louis Vuitton, Fendi, Donna Karan, Celine, Givenchy, Kenzo, Christian Lacroix, Thomas Pink and Pucci fall under the fashion and leather goods division, with no individual brand breakdown.

Asked to respond to the Gucci assertion of greater transparency, an LVMH spokesman said the volume of Louis Vuitton is “widely known” to be in excess of $3 billion, and the group discloses revenues and operating profits by division, with annual and interim reports detailing geographic distribution per business group.

But Gucci’s disclosure protocols should not be compared with LVMH because of differences in the size and composition of the competing luxury groups, the LVMH spokesman said. He added that the key issue in its case against Morgan Stanley concerns the separation of its equity research and its investment banking functions.

Indeed, seizing on the controversy in the wake of the lawsuit are several nonbanking organizations that do equity research and can trumpet their objective perspective.

One example is Standard & Poor’s. Best known for its credit rating agency, S&P has covered U.S. stocks for a couple of decades and, three years ago, started European equity coverage. Analysts at the firm estimate that the firm recommends a sell almost as often as it issues buy ratings.

“I think there are clear conflicts of interest between analysts and investment banking,” said Alessandra Coppola, S&P’s luxury goods analyst. “Until last year, the worst rating I ever saw on any of the companies I covered was a hold. Sometimes it was so obvious that the shares weren’t a buy.”

Coppola upgraded LVMH to “reduce” from “hold” in September. She said she is bullish on the company’s disposal of noncore assets like the Phillips de Pury & Luxembourg auction house.

Back in June, she promoted Gucci to a “buy” rating from “accumulate,” reassured by majority shareholder PPR’s promise to buy out outstanding Gucci shares at $101.50 per share in 2004.

Many independent research outfits are small commodities with limited name recognition and a local focus. But that could change if media and financial information giant Reuters launches its own equity research arm, as press reports in Europe suggest.