By  on July 27, 2007

PARIS — The dollar and yen may be sliding against the soaring euro and there still might be some concerns about the Japanese market, but LVMH Moët Hennessy Louis Vuitton and PPR remain bullish about luxury.

"The demand is formidable," LVMH chief Bernard Arnault told a meeting of analysts and reporters here Thursday, as he disclosed that the group's net profits through the first six months of the year rose 2 percent as sales gained 6 percent. "There's great dynamism in all of our activities. The results are remarkable [given the currency-exchange environment]."

Meanwhile, at PPR, owner of Gucci Group, Jean-François Palus, PPR's chief financial officer, said sales trends in early July had been "favorable" and the company remained confident for the rest of the year. "All of the [luxury] brands benefited from favorable dynamics for the sector — except in Japan," said Palus, as the group revealed an 18.1 percent rise in sales in the second quarter through June. PPR won't reveal earnings until Aug. 31.

However, there was some caution. While Arnault confirmed his forecast for "significant" growth in the year's results, he voiced "caution" for the remainder of the year due to the potential "oscillations" in the currency market.

"I'm optimistic on the second half and the year as a whole," said Arnault. "The caveat is the exchange rate."

On a positive note, he cited nascent signs of a pickup in Japan, which has been dogged by low consumer confidence. Arnault said sales in Japan for Louis Vuitton had been particularly robust in the second quarter and that he believed Japanese clients were returning to luxury.

The results came a day after Hermès, famous for its Birkin and Kelly bags, said the high value of the euro against the yen would crimp its full-year results.

Vuitton, Wine and Spirits Drive LVMH

At LVMH, net profits rose 2 percent to 834 million euros, or $1.11 billion, in the first half from 817 million euros, or $1 billion, a year earlier, slightly missing most analysts' expectations. Sales increased 6 percent to 7.41 billion euros, or $9.85 billion, from 6.97 billion euros, or $8.57 billion, driven by double-digit gains at Louis Vuitton and a solid performance in the wine and spirits division.Arnault said Vuitton had excellent results in Asia, Europe and the U.S.

Yves Carcelle, president of LVMH's fashion and leather division, said demand had been particularly strong for the Damier Azur, Epi and Monogram offerings. He said it appeared Vuitton had "reentered a period of durable growth in Japan."

To meet lusty demand for the brand's footwear, he said a new Vuitton shoe factory was being built in Italy. He added the company would launch a new advertising campaign meant to emphasize the more timeless nature of its products.

Shot by Annie Leibovitz, the pictures, unveiled during the meeting, feature Catherine Deneuve; Andre Agassi and Steffi Graf, and Mikhail Gorbachev in separate situations with Vuitton luggage. The campaign is meant to be a counterweight to Vuitton's more fashion-forward campaign, which this fall features actress Scarlett Johansson for the second time, Carcelle said.

Sales in the fashion and leather goods division, which also includes Celine, Givenchy, Marc Jacobs, Loewe, Berluti, Donna Karan, Pucci and Fendi, grew 6 percent to 2.6 billion euros, or $3.46 billion. Profits from recurring operations advanced 10 percent to 814 million euros, or $1.08 billion. All currency conversions were made at average exchange rates for the respective periods.

Arnault said Fendi had delivered robust sales and that its retail network would continue to expand through the end of the year. Growth also was cited at Marc Jacobs, Givenchy and Donna Karan.

Watch and jewelry sales — one of the hottest categories in luxury — advanced 17 percent to 390 million euros, or $518.5 million, led by double-digit gains at Tag Heuer, Zenith and Dior. Profits from recurring operations grew 90 percent to 57 million euros, or $75.8 million, as average watch prices climbed and operations were streamlined.

Beauty and perfume sales improved 8 percent to 1.26 billion euros, or $1.67 billion, as Christian Dior's J'Adore and Miss Dior continued to sell well. The division's profits gained 37 percent to 108 million euros, or $143.6 million.

At the selective retailing arm, sales advanced 5 percent to 1.89 billion euros, or $2.51 billion, reined in by the high value of the euro, which particularly hurt the DFS duty free business as fewer Japanese shopped. Business at the Sephora beauty chain, however, continued to be strong. Arnault said Sephora would open 20 stores in China this year.Wine and spirits sales grew 8 percent to 1.31 billion euros, or $1.74 billion, with profits growing 11 percent to 393 million euros, or $522.5 million, as prices were raised in most regions.

The results were issued after the market closed here. LVMH shares fell 2.2 percent to close at 80.25 euros, or $106.69, in trading on the Paris Bourse.

Meanwhile, Christian Dior Couture reported sales in the first half grew 12 percent to 368 million euros, or $489.2 million, while operating profits soared to 28 million euros, or $37.2 million, from 8 million euros, or $10.1 million, last year. Sidney Toledano, president of Christian Dior, said sales had been robust in Asia, Japan and Europe. He said more luxurious products selling at more expensive prices had been most successful, helping to account for the gain in profit.

PPR Rises on Luxury, Puma

Benefiting from solid sales at Gucci Group and the inclusion for the first time of its new Puma division, PPR on Thursday reported better-than-expected second-quarter revenues of 4.79 billion euros, or $6.46 billion, up from 4.06 billion euros, or $5.1 billion, a year earlier, slightly above most analysts' expectations.

The luxury division advanced 7.7 percent to 836.5 million euros, or $1.13 billion, as sales at Gucci Group grew 3.3 percent to 486.2 million euros, or $655.5 million. Currency conversions were made at average exchange rates for the respective periods.

Nonetheless, the company was hampered by adverse currency trading conditions. Gucci brand revenues, for example, grew 9.8 percent before the impact of currency exchange rates, driven by an 18 percent improvement in ready-to-wear and a 21 percent gain in sales of footwear. Sales of Gucci's leather goods advanced 11 percent, led by robust demand for the new Indy bag.

The brand advanced in all geographical zones, particularly North America, where sales grew 16 percent, and Asia excluding Japan, which accelerated 20 percent. Sales in China rose 118 percent, and sales in Japan gained 4 percent.

PPR said the total luxury division's sales in Japan declined 2.8 percent to 122.6 million euros, or $165.3 million, hurt by the euro. Before the impact of exchange rates, sales grew 12.3 percent."The global environment in Japan is soft," said Palus. "It's not only the weakened yen, luxury consumption in Japan has evolved."

To adapt, Palus said PPR was "up-trading" Gucci there and tailoring the offer to the Japanese clientele.

Bottega Veneta logged another spectacular quarter, recording sales growth of 37.7 percent to 80.3 million euros, or $108.3 million. Revenues in Japan, which accounts for one-third of Bottega's total business, bounded 70 percent, led by sales of Sloane, Montaigne and Roma bags.

The loss-making Yves Saint Laurent subsidiary showed continued signs of health, with sales advancing 7.8 percent to 45.5 million euros, or $61.3 million, with good growth in leather goods, particularly for the Muse, Downtown, Double and Tribute bags.

Sales at the iconic house grew 28 percent in Europe, and 24 percent in Asia outside of Japan, PPR said.

Sales at YSL Beauté gained 3.2 percent to 137.4 million euros, or $185.2 million, while growth at the so-called "other brands" — including Balenciaga, Boucheron, Sergio Rossi, Stella McCartney and Alexander McQueen — continued on a strong upward arc as their collective sales grew 19.8 percent to 87.1 million euros, or $117.4 million.

By zone, overall luxury sales gained 11.9 percent in Europe, 14.2 percent in Asia outside of Japan and 5.5 percent in North America. Before the impact of the high value of the euro, sales in North America advanced 14.3 percent.

At PPR's new Puma brand, where the French group now controls a 62.1 percent stake, second-quarter sales grew 3.1 percent to 543 million euros, or $732.1 million. PPR said Puma's accounts had been fully consolidated into its financial statements as of April 1. Puma will release its second-quarter results on Aug. 9, PPR said.

At PPR's retail division, the Fnac book and music chain said sales grew 6.3 percent to 997.6 million euros, or $1.34 billion, while the Conforama furniture chain saw sales advance 2.7 percent to 721.3 million, or $972.5 million.

Sales at the Redcats mail-order division declined 1.4 percent to 1.06 billion euros, or $1.43 billion, as the cataloguer repositioned many of its books in a challenging environment.Revenues at the CFAO African trading business improved 12.5 percent to 636.9 million euros, or $858.7 million.

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