with contributions from Jennifer Weil
 on February 2, 2016

PARIS — Bernard Arnault is bracing for more bad news.

This story first appeared in the February 3, 2016 issue of WWD. Subscribe Today.

Though LVMH Moët Hennessy Louis Vuitton ended 2015 on another quarter of revenue growth, the company’s chairman and chief executive officer predicted that 2016 would be filled again with uncertainty, with the continued prospect of currency turmoil, falling oil prices and terrorist attacks that could further dent the luxury sector.

“You have to be optimistic in the long term and pessimistic in the short term. That allows you to prepare for the worst,” Arnault told a news conference at the luxury conglomerate’s headquarters in Paris. “The economy will be subject to the same phenomena as it was in 2015.”

In results reported after the market close on Tuesday, LVMH said revenues for the fourth quarter totaled 10.38 billion euros, or $11.35 billion, a 5 percent increase in organic terms. This compared with a rise of 7 percent in the third quarter of 2015 and an increase of 5 percent in the fourth quarter of 2014.

In reported terms, revenues were up 12 percent in the fourth quarter, reflecting a gradual decline in the positive contribution of the weak euro to the group’s results.

Arnault noted that footfall in Paris is 4 to 5 percent below average levels for the period due to the lingering effects of the terrorist attacks in November, which has discouraged locals from spending and kept tourists at bay.

“The impact on our business as a whole is not huge,” he said, adding that the main challenge was shoring up staff morale.

While touting record revenue and operating profit for the year, the executive said he preferred to make forecasts for the next 20 years. On that basis, he predicted the company would post a good performance 80 percent of the time, with the United States and China remaining formidable motors for growth.

“What is probably certain is that there will be another crisis,” Arnault cautioned, highlighting warnings by some economists that the global economy could be headed for another crash due to excess liquidity.

Flashing a wolfish grin, the executive appeared undaunted by the challenges ahead, noting that LVMH had a track record of weathering crises better than most. “We do best when the economic outlook is more difficult. It’s quite surprising,” he said.

Among the headline projects he flagged for 2016 were the launch of Louis Vuitton’s first fragrance and the opening of a new retail concept by DFS Group on the Grand Canal in Venice, Italy, in the second half.

LVMH recorded sales of 35.66 billion euros, or $39.62 billion, in 2015, up 16 percent in reported terms and up 6 percent on an organic basis. Dollar figures are calculated at average exchange for the period to which they refer.

Arnault said the company benefited from the weakness of the euro, but was hit by turmoil in the BRIC economies, with a slowdown in China, weak oil prices sapping Russian demand and sharp devaluations in the Argentine peso and the Brazilian real.

Sales in Asia, excluding Japan, fell 5 percent, mainly due to declines in tourism in Hong Kong and Macao, but Japan saw a 13 percent jump as Chinese tourists switched to shopping there instead. Sales in Europe were up 10 percent, while the United States posted a 9 percent increase.

However, Arnault excluded the prospect of closing stores in Hong Kong and said on the contrary, Vuitton planned to renovate its two largest stores there this year.

In addition, LVMH is taking advantage of a glut of new malls in China to drop leases in areas that have become less profitable and in some cases, securing “up to two or three years’ free rent” from developers keen to have Vuitton as an anchor.

For the year as a whole, net profits totaled 3.57 billion euros, or $3.97 billion, down 37 percent versus the previous year. However, excluding the exceptional gain from the distribution of LVMH’s stake in Hermès International in 2014, net profit was up 20 percent year-over-year.

Profit from recurring operations totaled 6.61 billion euros, or $7.34 billion, up 16 percent versus 2014.

By division, sales for LVMH’s key fashion and leather goods division advanced 4 percent in 2015 as a whole. Meanwhile, wines and spirits gained 6 percent; perfumes and cosmetics, 7 percent; watches and jewelry, 8 percent, and selective retailing, 5 percent.

The group’s cash-cow brand, Louis Vuitton, had a record year, with double-digit sales growth and an absolute record in the month of December, Arnault said. Meanwhile, Fendi scored “remarkable” growth in 2015 with revenues increasing by more than 20 percent, he added.

Jean-Jacques Guiony, LVMH’s chief financial officer, said currency fluctuations made it impossible for Vuitton to pass on any price increases to customers last year, except for a 3 percent price hike in Europe in June.

Vuitton’s margin over the period was stable and its operating result was in line with the fashion and leather goods division as a whole, which posted a 10 percent rise in profit from recurring operations, Guiony added.

The performance of the fashion and leather-goods division was weighed down by the ongoing restructuring at its two North American brands, Marc Jacobs and DKNY. Pierre-Yves Roussel, chairman and ceo of LVMH Fashion Group, said the effects of the turnaround should be partially felt this year, but the impact would be more significant in 2017.

Standing in front of a large image of Johnny Depp in the ad campaign for the Dior men’s fragrance Sauvage, Arnault said the scent has achieved number-one ranking in most countries where it is distributed. Smaller cosmetics brands also did well, with revenues at Benefit up by more than 30 percent, he noted.

On the watch and jewelry front, Bulgari enjoyed strong momentum, thanks to its women’s lines Diva and Lucea, while Tag Heuer started to reap the benefits of a repositioning under Jean-Claude Biver, who is ceo of the brand as well as president of the watches division at LVMH.

Flashing his wrist to show off his Tag Heuer Connected smartwatch, launched in November, Arnault said demand was sufficiently high for the group to sell between 90,000 and 110,000 units of the watch per year, but it was constrained by insufficient production capacity.

Selective retailing didn’t fare as well, as travel retailer DFS was hit by the downturn in Hong Kong and Macau, making it the only business unit with falling sales.

This was compensated by organic double-digit growth at Sephora and a 20 percent revenue rise at Le Bon Marché, which, thanks to its current exhibition by Chinese artist Ai Weiwei is enjoying visitor numbers comparable to the holiday period, Arnault said.

LVMH ended the year with free cash flow of 3.68 billion euros, or $4.08 billion, but Arnault remained noncommittal regarding potential acquisitions.

“We don’t need them. If the opportunity arises, we’ll see. What the group is mainly interested in at the moment is start-ups,” he said.

“First of all, there is less risk involved, and in addition, it can be more fun and it allows us to motivate our teams. In fact, we also try to run our businesses a little bit like start-ups, even the big ones. Even a business like Vuitton, you have to avoid at all costs running it in a way that is too autocratic,” he said.

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