PARIS — It was a brutal second quarter, but things seem to be improving — slowly and slightly.

That’s the cautious message LVMH Moët Hennessy Louis Vuitton delivered Thursday as it reported weaker-than-expected second-quarter sales that were crumpled nearly 15 percent by a decline in tourism and unfavorable currency exchange markets.

On the upside, however, a provisional 3 percent gain in first-half operating income pleased investors, driving LVMH shares up 2.6 percent to $53.85, or 47.66 euros, in trading on the Paris Bourse.

For the half, with sales down at all five of the group’s operating divisions, LVMH said revenues fell 9.9 percent to $5.9 billion from $6.56 billion last year. Adverse currency exchange rates impacted sales roughly 11 percent, LVMH said. Dollar figures have been converted from the euro at current exchange as LVMH reported year-to-date sales of 5.24 billion euros against prior-year sales of 5.82 billion euros.

However, the subtraction of first-quarter sales figures released in April from those of the first half reveals that LVMH’s second-quarter sales declined 14.9 percent to $2.74 billion, or 2.43 billion euros, from $3.23 billion, or 2.86 billion euros, in the year-earlier period.

But in a conference call with investors, chief financial officer Patrick Houel said sales had improved in the second half of June and early July after a difficult April and an abysmal May.

“We think that the second half will be better,” he added, pointing to a slow revival in travel flows and a slight strengthening of the dollar.

LVMH said it expects a return of a “more normal environment” in the first half of 2004, “barring any geopolitical or other incident between now and then. Some clear signs of recovery have appeared in most of the group’s activities since June. These external factors are nevertheless uncertain.”

LVMH, like the majority of French firms, reports earnings and sales separately. It is slated to disclose first-half profits on Sept. 11.

Analysts said that despite weak second-quarter sales, the gain in first-half operating income underscored the group’s resilience.

“The decline in sales shows that the trading environment in the second quarter was even more difficult than we thought,” said Jacques-Franck Dossin, an analyst with Goldman Sachs. “But the earnings notice illustrates that LVMH is resisting better than most.”In a note to investors, Merrill Lynch called the operating performance stronger than expected. “LVMH’s performance at the operating level was supported by its strongest brands,” such as Louis Vuitton and Hennessy cognac. “Although the environment remained tough for all players, LVMH appears to be weathering the storm better than most.”

Although its star Louis Vuitton brand logged double-digit growth, first-half sales in the fashion and leather goods division declined 6 percent to $2.11 billion, or 1.87 billion euros, from $2.28 billion, or 2.02 billion euros, a year ago.

Houel said Vuitton, which accounts for about 65 percent of group operating profit, had performed particularly well in Japan and the United States, buoyed by the new Suhali leather goods range and the handbag collaboration between creative director Marc Jacobs and Japanese pop artist Takashi Murakami.

Houel said the company was struggling to fill demand for the Murakami products and that the Suhali line had a waiting list.

In America, Vuitton’s second-quarter sales jumped 24 percent at constant exchange rates. Excluding France, which was impacted by fewer tourists, Vuitton’s sales in Europe grew at a double-digit pace too, Houel said.

As for the division’s other brands, ranging from Christian Lacroix and Givenchy to Fendi and Pucci, Houel said that they have “all suffered from the economic situation.”

Some, however, have resisted better than others, Houel said, singling out a strong performance at Marc Jacobs, which had double-digit organic growth in the second quarter. Houel said that Jacobs should reach $100 million in sales by next year.

Celine and Loewe have improved in recent months, and Pucci has had organic double-digit growth, Houel added.

Meanwhile, Houel reported that some 20 Donna Karan outlet stores have been closed over the half as LVMH repositions the brand’s distribution. As a result, Houel said revenue had declined at Karan, but that the house was profitable in the half.

Sales in the perfumes and cosmetics division declined 8 percent in the half to $1.1 billion, or 974 million euros, from $1.18 billion, or 1.05 billion, euros last year.

Dossin said that this reflected overall softness in the fragrance and cosmetics market.Revenues from watches and jewelry tumbled 17.6 percent to $237.3 million, or 210 million euros, from $288.2 million, or 255 million euros, a year ago, as retailers destocked products in the face of war and SARS.

But Houel underscored that “inventories have now gone down and it seems that retailers are reordering. Bulgari has said it’s seen recovery. I think this will be the case for most companies.”

DFS, the company’s duty-free division, suffering from less tourism, war and SARS, saw sales plunge 36 percent at constant exchange rates in the second quarter, according to Houel.

“DFS was severely affected by the situation,” he said. “In May there were certain weeks that we were down 40 percent from the year before. Now DFS is in strong recovery. It’s still negative, but we have very different numbers.”

Nevertheless, Houel said that DFS is expected to break even for the full year.

Overall, the selective retailing branch, which groups DFS, Le Bon Marche department store in Paris and the Sephora beauty chain, declined 13 percent in the half to sales of $1.52 billion, or 1.35 billion euros, from $1.76 billion, or 1.56 billion euros, a year ago.

Houel said Sephora’s sales in the U.S. increased 17 percent in dollar terms from the beginning of the year and that the chain would be profitable in the U.S. for 2003.

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