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PARIS — LVMH Moët Hennessy Louis Vuitton managed to dodge the effects of the Iraqi war and SARS in the first quarter, but not the dramatic shifts in international currency markets.
A negative currency impact of about 11 percent hurt the performance of the luxury giant, which saw sales fall 5.2 percent to $3 billion in the three months ended March 31.
However, analysts and the company pointed to “organic” growth, excluding currency shifts and all but continuing operations, of 6 percent as the more telling figure, suggesting the French group is showing good resilience in the face of a difficult environment.
Indeed, sales of Louis Vuitton advanced at a double-digit pace last week in Hong Kong, chief financial officer Patrick Houël told analysts during a conference call. Taking pains to downplay the impact of SARS, he noted that together, Hong Kong and Singapore, hit hard by the crisis, represent only 6 percent of its total business.
Houël said a drop in global travel because of SARS and the war in Iraq have only impacted DFS, which saw sales drop 6 percent in March. But other regions fared well, with group sales up 10 percent in the U.S. and Japan up 15 percent. In the U.S., LVMH’s sales of wines and spirits advanced 10 percent; fashion and leather goods, 11 percent; Louis Vuitton, 28 percent, and Sephora, 17 percent. While all divisions experienced sales declines in net terms, only the watches and jewelry unit posted an organic sales drop.
LVMH isn’t slated to disclose first-half profits until September, but reiterated Wednesday its objective of “further tangible growth of operating income in 2003 and giving priority to cash generation.”
And it also pointed out currency effects would not hurt its bottom line in the quarter, noting that efficient global hedging enabled it, led by Vuitton’s double-digit quarterly increase, to post “an increase in operating income exceeding our expectations at the beginning of the year.” Analysts estimated an increase in operating income in the range of 10 to 15 percent.
Sales in the fashion and leather goods division slid 1.2 percent to $1.15 billion, versus $1.16 billion a year ago, but were ahead 9 percent in organic terms. Vuitton led the pack, with LVMH citing waiting lists around the world for new handbags designed by creative director Marc Jacobs in collaboration with Japanese artist Takashi Murakami, as well as for its Tambour watch.
An LVMH spokesman also highlighted positive reaction to Donna Karan’s fall collections, Celine’s new “poulbot” handbag, and the latest collections of Pucci and Loewe. He also cited double-digit sales growth at Marc Jacobs and Berluti.
The perfumes and cosmetics division saw sales drop 2.6 percent to $520.8 million, although organic growth totaled 6 percent in the quarter, led by new products and Christian Dior’s skin care line, Capture R60/80.
Positive momentum at Sephora, including 24 percent comp-store sales growth in local currency terms in the U.S., highlighted the selective retailing division, where sales fell 4.5 percent to $798.4 million. Houël said the company would continue to trim expenses at DFS by renegotiating airport concessions and reducing store hours. He added that both chains should break even this year.
Sales in the wines and spirits division fell 10.9 percent to $436.2 million, while watches and jewelry dropped 20.5 percent to $104 million. The results were roughly in line with forecasts.
Antoine Colonna, luxury analyst at Merrill Lynch in Paris, reiterated his buy recommendation on the stock. “Vuitton’s superior organic momentum within the sector is an outstanding achievement…in the face of slower consumer demand and a weak global economy,” he wrote in a research note.
Andrew Gowan, luxury analyst at Lehman Bros. in London, warned that trading conditions could deteriorate in the second quarter, depending on the duration of the Iraq conflict and the SARS outbreak, but “we would again reiterate our belief that the impact of these events on the industry will be less than the effect of the terrorist attacks on Sept. 11, due to the lower seasonal importance of the second quarter and the forward planning that many of the companies were able to engage ahead of the well-telegraphed war.”
Meanwhile, LVMH said it would continue to focus on its major brands, while “paying close attention to the global economic situation and accelerating the necessary steps to again improve profitability and to gain market share.”
LVMH shares rose 3.8 percent Wednesday to close at $42.40 on the Paris Bourse.