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Luxury Galloping Away: Arnault’s Outlook Bullish As LVMH Net Leaps 30%

LVMH said net income vaulted 30 percent in 2003 to $875.6 million and its chief, Bernard Arnault, said growth should continue, barring disaster or war.

PARIS — Bernard Arnault has a message for President Bush: Don’t start any more wars.

The luxury titan made that a caveat to his bullish outlook after reporting that net income at LVMH Moët Hennessy Louis Vuitton vaulted 30 percent in 2003 to $875.6 million, or 723 million euros, and that sales in January and February gained 7 percent in organic terms.

This story first appeared in the March 4, 2004 issue of WWD.  Subscribe Today.

“The results are very promising: 2004 will be another excellent year for LVMH. The strong start to the year has made me even more confident,” Arnault told analysts here Wednesday. “But if Mr. Bush decides to move into another part of the world, things could change.”

Barring that, or some unforeseen catastrophe like the killer pneumonia SARS, which along with the Iraq war ravaged the sector in the first half of last year, Arnault said LVMH should report “tangible growth” in operating income this year, the same goal it set for itself last year.

Speaking in a rapid-fire manner — perhaps so as not to be late for the Christian Dior runway show later on Wednesday — Arnault boasted that LVMH gained market share in all of its businesses, highlighting “spectacular” growth in wines and spirits and record margins in excess of 45 percent at Louis Vuitton, the cash cow of the group that pulls in some two-thirds of operating profits.

In fact, Arnault said Vuitton has “the biggest potential” of all of its brands, citing double-digit organic growth in January and February as a good omen for this year. Later in the presentation, Vuitton chief executive Yves Carcelle said the brand posted record sales in December, with sales in dollars catapulting more than 50 percent in the fourth quarter in the U.S.

Perhaps as a reward for the stellar performance of the Vuitton brand, creative director Marc Jacobs might be getting his very public wish to have LVMH speed up the growth of his own label. During his presentation, Carcelle highlighted Jacobs as one of the group’s small brands with high potential that would receive “accentuated” development in 2004.

He didn’t give specifics, but noted that Jacobs, whose volume was a paltry $2 million when he joined LVMH in 1997, reached $115.1 million, or 95 million euros, last year. The other small brands to get priority are Pucci and Berluti. Pucci’s volume has risen 10-fold and Berluti’s by 15 times since their acquisitions in 2000 and 1993, respectively.

During his address, Arnault noted that the weakness of the dollar remains one of the main known hurdles for the group. Negative currency effects wiped out $363.3 million, or 300 million euros, from the bottom line last year. Excluding that, operating income would have been up 20 percent, he said.

The firm also took a hit with its disposal of the watch brand Ebel, the main reason for a $168.3 million, or 139 million euros, line item for asset disposals. Dollar figures are converted from euros at current exchange.

Group operating income rose 9 percent last year to $2.64 billion, or 2.18 billion euros, on net sales of $14.48 billion, or 11.96 billion euros. As reported, the company’s net sales fell 6 percent for the year. Organic growth stood at 4 percent.

LVMH said all of its divisions, save for watches and jewelry, contributed to the profits uptick. DFS, Guerlain, Celine and Sephora U.S. were among the brands LVMH trumpeted as reaching profitability last year.

By business group, operating income in selective retailing zoomed up 430 percent, to $128.4 million, or 106 million euros; perfumes and cosmetics, up 10.5 percent, to $215.6 million, or 178 million euros; wines and spirits, up 6.1 percent, to $964 million, or 796 million euros, and fashion and leather goods, up 2.4 percent, to $1.59 billion, or 1.31 billion euros. LVMH’s watches and jewelry division posted a loss of $58.1 million, or 48 million euros, while its “other businesses and eliminations” segment registered a loss of $195 million, or 161 million euros.

Christian Dior Couture, which is a sister company to LVMH, is expected to report its 2004 profits today.

Looking ahead, Arnault said Vuitton’s growth in 2004 would be fueled by new products like Giant Damier travel bags, a complete jewelry collection and an expansion of its watch range.

Arnault maintained a cautious tone regarding LVMH’s profit outlook, stressing “we have to be prudent.” He stressed cash generation would remain a chief priority next year, noting net gearing was below 60 percent at the end of 2003.

But he couldn’t resist a few swipes at his archrival François Pinault, in thinly veiled references to the forthcoming exits of Tom Ford and Domenico De Sole at Pinault’s Gucci Group.

Asked about the likelihood of LVMH resuming its acquisition habit, Arnault replied, “I think we can drive this business in the next two or three years without acquisitions. But there are other groups that, for various reasons, are going to have difficulties and they might have to let things go. In that case, we would take a look at them.”

He said an acquisition target would have to have significant profit potential and a reasonable price.

Asked later if he had any interest in Versace, which is said to be seeking a financial partner or investor, Arnault said, “We’re not talking to them right now, and we have no particular intention.”

Disposals were also a point of interest during a lively question-and-answer session, given that LVMH unloaded several businesses last year, including BlissWorld, the fragrance businesses of Michael Kors and Marc Jacobs, as well as Canard-Duchene champagne and Hine cognac. Arnault characterized any imminent disposals as “marginal.”

Pressed about DFS and Sephora, which Arnault had once described as “non-strategic,” he said DFS is still in turnaround mode and profitability must be increased before deciding to sell off any subsidiaries. “The question is not on the agenda for 2004,” he concluded.

LVMH plans to continue investing in its strongest brands, led by Louis Vuitton, but also encompassing Celine, Donna Karan and Fendi.

“Fendi has huge potential for the future,” Arnault boasted, noting that advertising expenditures for the brand would be at 11.5 to 12 percent of sales.

He characterized Karan’s business as breakeven last year, with Fendi still “in the investment stage,” with profits “a couple of years” away.

The results were below some analysts’ expectations — and some were alarmed by restructuring charges. Shares of LVMH went down 0.88 percent to close at $75.03, or 61.95 euros, on the Paris Bourse.

— With contributions from Jennifer Weil

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