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PARIS — At Le Bon Marché department store last weekend, the first shipment of Louis Vuitton’s special monogram handbags decorated with cherry blossoms sold out in two hours flat. And in the U.S., the waiting list for the limited-edition styles — a collaboration between Vuitton creative director Marc Jacobs and Japanese artist Takashi Murakami — has surpassed 7,000 names.

This story first appeared in the March 7, 2003 issue of WWD. Subscribe Today.

Bernard Arnault, chairman of LVMH Moët Hennessy Louis Vuitton, related those two anecdotes in support of his optimistic outlook for 2003, despite the tense geopolitical situation and a grim economic forecast.

Announcing that net profits totaled $609.6 million last year after a dismal 2001 during which they virtually evaporated to $8.7 million, the luxury titan said “out of this world” brands like Louis Vuitton, Hennessy and Dom Perignon — which has the highest profit margins in the group — would help it weather the storm. Last year, operating profits grew 29 percent to $2.2 billion on a sales increase of 3.8 percent to $13.95 billion, as reported. Dollar figures have been converted from the euro at current exchange.

“Let’s be careful making generalizations about the luxury sector. What counts is individual companies,” he urged an audience of analysts and journalists gathered at the Four Seasons hotel here. “We are in a good position to face an uncertain environment. Whenever we have encountered a crisis, our group has come out stronger. We want to pull through this uncertain period in an improved position and with more market share.”

Arnault said LVMH would continue to focus its investment and energies on brands and stores with the most profit potential — and quietly divest “nonstrategic” and “marginal” brands and assets.

As reported, LVMH recently sold its one-third stake in Michael Kors, and its majority stakes in the niche beauty brands Hard Candy and Urban Decay. Pressed for further details during the question-and-answer period, Arnault declined to give a laundry list of companies that might be on the block, but noted some are already in negotiations.

For example, DFS and Sephora, long ago dubbed “noncore” by Arnault, are still in turnaround mode. “We are not going to address the issue of disposal before we have reached recovery,” he said. Asked about Celine and Loewe, among the fashion brands said to be considered for divestiture, Arnault would only say he’s “reviewing” their performance and potential and taking a more “hands-on” approach.

Analysts said the results were roughly in line with expectations.

Jacques-Franck Dossin, luxury analyst at Goldman Sachs, said LVMH’s massive restructuring efforts last year seem to be bearing fruit. “The operating performance and cash flow generation are improving rapidly,” he said. Asked if Arnault’s optimism is justified in the face of an uncertain climate, Dossin replied: “It seems like the strength of the core Louis Vuitton brand is continuing. It is completely flying above the rest of the sector.”

In a research note, Antoine Colonna, luxury analyst at Merrill Lynch, which has a “buy” recommendation on the stock, said the investment firm would not change its earnings forecasts, but noted that risks to its price projections for the stock include terrorism, war and a protracted economic crisis in the U.S.

The performance represents a substantial rebound for LVMH after its struggles to post even a small profit in 2001 as it confronted a drop in tourism in the wake of the Sept. 11 terrorist attacks, a weak yen and heavy losses at DFS and the auction house Philips.

But LVMH’s selective retail division moved into the black last year, with operating profits of $21.9 million versus losses of $169.6 million in 2001. Arnault noted that Sephora cut its losses in half in the U.S. last year and is expected to turn a profit in 2003.

Operating income in the fashion and leather goods division inched up 2 percent to $1.42 billion, led by Louis Vuitton. Vuitton president Yves Carcelle noted that new products, such as the Tambour watch and Louis Vuitton Cup collection, represented 11 percent of sales last year. He added that Louis Vuitton plans to expand its Paris flagship on the Champs Elysées to span the entire building. Briefly discussing other brands in the division, Carcelle described 2002 as a “transitional” year for Donna Karan and Fendi.

The perfume and cosmetics division saw operating income grow 8 percent to $176.5 million. The watch and jewelry division was the only unprofitable unit, and LVMH attributed its $14.3 million deficit to the loss of third-party manufacturing agreements and heavy investments in communications and brand development.

LVMH said it logged organic growth of 7 percent for the first two months of 2003, with Louis Vuitton growing at double-digit rates in the period. It has set an objective of a “tangible” increase in operating income for 2003.

Shares of LVMH rose 0.3 percent to close at $41.88 Thursday on the Paris bourse. The firm will propose a dividend of 88 cents at its annual shareholders’ meeting May 18.

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