PARIS — Likening high-flying leather goods maker Louis Vuitton to a “luxury Microsoft,” Bernard Arnault credited the unit for helping LVMH Moët Hennessy Louis Vuitton’s net profit jump 23.8 percent to $297 million in the first half, versus $239.8 million a year ago.
Dollar figures have been converted from the euro at current exchange as LVMH reported net income of 265 million euros versus year-ago profits of 214 million euros.
“We’re just going to carry on investing in this company,” Arnault, chairman of the world’s largest luxury group, told analysts Friday as they gathered to hear results at the George V Four Seasons hotel here. “Many people believe that only small companies can grow very fast, but we’re proving otherwise.”
He said Vuitton sales are expected to accelerate and grow by double-digits for the balance of the year, and suggested only production capabilities are holding it back. He alluded to waiting lists numbering in the “tens of thousands” for products like multicolor monogram bags, a collaboration between Marc Jacobs and Japanese artist Takashi Murakami.
Goosed by Vuitton, LVMH saw its organic sales advance 5 percent in July and August, Arnault said. Stripping out the negative impact of DFS, hard hit by a drop in tourism due to SARS and the Iraq war, organic growth stood at 8 percent in the period.
“In the medium-term, I believe we are going to improve our lead on the market,” Arnault said.
As reported in July, first-half sales fell 10 percent to $5.9 billion, or 5.24 euros, from $6.56 billion, or 5.82 billion euros, in last year’s comparable period. Excluding variations in currency and corporate structure, sales were up 1 percent. The sales decline was more pronounced in the second quarter than in the first.
Operating profits rose 4 percent to $979.4 million, or 874 million euros, versus $941.3 million, or 840 million euros, a year ago.
Analysts said the results were roughly in line with expectations, and were encouraged by the LVMH chairman’s bullish stance on Vuitton.
“We believe product launches, store openings, increased share of voice, pricing power and additional manufacturing capabilities should make this performance achievable [at Vuitton],” Antoine Belge, analyst at HSBC in Paris, wrote in a research note. “The meeting confirmed our view that LVMH — alongside Bulgari — is the best play on the luxury goods industry recovery.”He added, however, that net profits were a “slight” disappointment due to a higher than expected depreciation of $72.8 million on shares LVMH owns in telecom giant Bouygues.
Antoine Colonna, analyst a Merrill Lynch in Paris, said spirits and perfumes and cosmetics beat his forecasts, but leather goods and fashion did not, “probably stemming from the non-Vuitton brands.” Watches and jewelry, where losses widened more than fivefold to $42.6 million, were also a disappointment.
Nevertheless, he added “it seems to us that LVMH is still offering significant upside, both vis-à-vis the sector…but more importantly in absolute terms.”
At the meeting, Arnault reiterated his objective of “tangible” growth in operating income for the full year. He also maintained that DFS would reach break even and that Sephora, aided by improvements in the U.S., would be “slightly” profitable in 2003.
Arnault also stressed that LVMH would continue to focus, from among the 50-some names in its stable, on the brands most likely to generate profits. “This is our major strategy: investing in major brands,” he said.
Besides Vuitton, Arnault said Fendi and Donna Karan would headline efforts in its fashion and leather goods division. In fact, investments in those two brands in the first half weighed on the division, where first-half operating income slipped 1.9 percent to $710.5 million compared to $723.9 a year ago.
“This is not going to generate immediate results,” he said of those investments. “It will take time. But especially with Fendi, the brand is likely to become a star and a leading force in Italian fashion.”
LVMH said Fendi’s new strategy centers on its core fur and leather goods business, while Donna Karan would reorganize its distribution network as a “solid basis for profitable growth.”
The firm also praised the “strong performance” of Celine, which is believed to be on the track to profitability this year. And it noted that “brands such as Marc Jacobs, Pucci and Berluti showed a double-digit rise” in first half sales at constant exchange.
By division, Arnault also granted special praise to the wines and spirits division, which saw operating profits leap 15.8 percent to $359.7 million versus $310.4 million a year ago. Arnault confessed he had mulled shedding that business in the Nineties, but was glad he didn’t. He reminded analysts that Dom Perignon remains the most profitable brand in the group.Losses at the selective retail division in the half narrowed to $16.8 million from $43.7 million a year earlier. Arnault acknowledged “we were quite penalized by slumping tourism, but characterized the performance of DFS and Sephora chains as “satisfactory” in the first half.
“I believe we are going to improve our lead on the market,” Arnault said. “By the end of the year, I think the situation will be healthy. If nothing stands in our way, the second half will be better than the first.”
During a brief question and answer period, Arnault was peppered with questions about his future intentions for DFS and Sephora, having called this activity “noncore” in the past and suggesting a disposal may be in the near future.
“I don’t remember saying that this morning,” Arnault said, to a smattering of chuckles. “We are focusing on profitability (at DFS). Our objective is to reach about 10 percent on a global basis.”
Shares of LVMH fell 1.1 percent Friday to close at $60.18 on the Paris Bourse.
Breaking News: @louisvuitton's men's artistic director @mrkimjones is leaving the French fashion house after nearly 7 years. Jones joined Louis Vuitton in 2011, following a three year tenure as creative director of British luxury goods brand Alfred Dunhill. Jones is to exit Louis Vuitton after showing his fall 2018 collection for the brand in Paris on Thursday. Read the full exclusive story on WWD.com. Link in bio. #wwdnews #wwdfashion
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews