LVMH SOARS AGAIN: SALES UP 35 PERCENT, VUITTON DEMAND HUGE
Byline: Miles Socha / Robert Murphy
PARIS — The huge lineups at Louis Vuitton stores, a familiar daily sight here, are emblematic of another good year for LVMH Moet Hennessy Louis Vuitton, which saw sales in 2000 leap 35 percent to a record $10.9 billion.
In fact, the luxury giant said Tuesday “extraordinary” demand for Vuitton products could not be met in the fourth quarter, restricting sales growth in the period to 19 percent. Turnover for the year at Vuitton grew by 37 percent and LVMH said it will increase production capacity in the first quarter to meet demand for such products as its monogram Vernis and Epi leather bags in pastel colors.
Analysts said the sales figures were largely in line with their expectations and were indicative of a strong performance for the French group. But some cautioned that a slowing U.S. economy and a weak yen might make it difficult for LVMH to sustain the momentum of the past two years. Sales in 1999 jumped 23 percent.
LVMH did not provide a geographical breakdown for sales on Tuesday. But in a telephone interview, Myron Ullman, group managing director, said that growth was balanced across all geographical regions, with bigger U.S. growth this year due largely to the acquisition of Miami Cruiseline Services, which provides duty-free shops to the cruise industry.
Shares in LVMH closed at $72.90, up 1.7 percent, on the Paris Bourse. All dollar figures are converted from the euro at current exchange.
For the fourth quarter of 2000, sales increased 31 percent to $3.5 billion, which LVMH characterized as a “remarkable” achievement given it was on top of a 29 percent rise for the fourth quarter of 1999.
Sales in LVMH’s fashion and leather goods division, which comprises such brands as Givenchy, Celine, Christian Lacroix, Kenzo, Fendi and Pucci, increased 39 percent to $3 billion for the year “with all brands showing double-digit turnover growth,” according to LVMH. In the quarter, sales in the division increased 25 percent to $856.3 million.
A breakdown by brand wasn’t provided, but Yves Carcelle, head of the fashion and leather goods division interviewed runway-side at the Lacroix summer couture presentation here, said, “I was really happy to see all the brands taking off. Lacroix is a perfect example. There were very strong increases in ready-to-wear, with all three lines proving to be successful.”
Meanwhile, sales of fragrances and cosmetics increased 22 percent. LVMH attributed the growth to the success of the new Christian Dior scent, J’adore, whose sales last year exceeded $122.2 million. It also cited Kenzo’s new fragrance, Flower, Guerlain’s scent Mahora and skincare line Issima, as well as Givenchy’s Hot Couture and Rouge Miroir fragrances, as strong performers last year. LVMH said that cosmetics brands it has acquired over the past two years, including Fresh and Urban Decay, grew by 80 percent to reach sales of $94 million.
Selective retailing, with total sales of $3.1 billion, increased 52 percent. LVMH said sales in the division would have increased 32 percent without the addition of Miami Cruiseline, which LVMH has fully integrated into the selective retailing division this year. Meanwhile, LVMH said DFS’s growth was driven by the “stabilization of the economic situation in Asia,” as well as the opening of Galleria stores in Australia and San Francisco. Sephora, the cosmetics and perfume retail chain, also performed well, according to the firm, in large part due to the 135 new stores added this year in Europe, 17 opened in the U.S., and five in Japan.
Sales of wines and spirits inched up 4 percent to $2.2 billion, which exceeded some analysts’ expectations and reflected a partial recovery from the so-called millennium hangover, in which a strong spike in demand for champagne in 1999 skewed sales comparisons.
In the fourth quarter of 2000, LVMH said sales of champagne and wines increased by 15 percent, while cognac surged 22 percent. “We have increased our market share in champagne, particularly with the Moet & Chandon and Veuve Clicquot brands,” the company noted.
LVMH said watch and jewelry sales of $577.2 million “outperformed our target of $564 million, thanks to the success of new products, including Alter Ego by TAG Heuer, Mihewi by Chaumet as well as best sellers such as Beluga by Ebel and Chronomaster by Zenith.” LVMH added that this year it has focused on creating new synergies between its holdings in the sector.
In a statement, Ullman said “these achievements further enhanced LVMH’s leadership in the global luxury goods market.” Looking ahead, Ullman said LVMH expects 2001 to “once again bring strong growth for LVMH.”
French companies announce sales and earnings separately. LVMH has set March 8 for releasing its fourth quarter earnings and figures for the full year. On Tuesday, LVMH said income from operations for 2000 increased more than 25 percent.
John Wakely, a luxury goods analyst at Lehman Brothers in London, said LVMH had a terrific year, with Louis Vuitton remaining the “powerhouse” of the group. But he took issue with its acquisitions in “low-return, low-multiple” sectors like retail, particularly fragrance and cosmetics retail, and Internet retailing.
Among LVMH’s acquisitions in 2000 was the Paris department store, Samaritaine.
Nathalie Schneider, luxury analyst at Paris-based Natexis Capital, said LVMH’s 35 percent increase was also “slightly above” her expectations, but emphasized that LVMH would “in no way replicate the same increase next year,” largely due to exchange rate fluctuations. Meanwhile, she was hesitant to say that the luxury sector will cool, which many analysts have been forecasting in recent months. “It’s too early to say,” she said. “There is a slowdown in the economy, but how it affects the luxury business remains to be seen.”
Claire Kent, equities analyst at Morgan Stanley in London, said the numbers “were slightly above our expectations. But the fourth quarter showed a slowdown in luxury and selective retailing and I don’t believe the recent levels of growth will be sustainable in 2001.”
Kent said that two key factors would play into increasing the probability of lower results in this year: a cooling of the U.S. economy and the weakening yen, which will adversely affect the Japanese tourism.
Wakely agreed, noting that there is generally a six-month lag before a weak yen impacts Japanese travel and luxury spending.
But Carcelle played down the rumblings, saying there is no reason to shift from “hyperoptimism to hyperpessimism.” He said he has confidence in the monetary authorities to contain massive fluctuations in the three key currencies: the dollar, yen and euro. And he said the U.S. is perhaps the most susceptible to short-term fluctuations, while the luxury goods sector operates on a longer calendar.
Carcelle said 2000 “was very exceptional and we were very happy with our performance. Even if we came back to normal growth, the world will still be happy.”
Also addressing analysts’ fears that the weakening yen could curtail growth this year, Ullman said: “We have all our risks hedged and feel confident vis-a-vis the currency situation. We also feel comfortable because we are diversified in several sectors and across geographical zones.” Still, he admitted that the favorable currency rates in 2000 accounted for 13 percent of growth.
But he also expressed confidence in the face of a potential economic cooldown. “Customers respond well to creativity and newness, which exposes us less to a slowing economy,” he said. “The desirability of our products remains very high. With Vuitton, the problem has been to satisfy the demand.”
Ullman added that LVMH expected the first half of this year would be more difficult than the second.
“There hasn’t been a slowdown in international tourism,” he said in reference to a weaker yen. “Just this week Japan released figures that outgoing flights have increased 6 percent.”
Looking ahead, Ullman forecast that this year Vuitton will continue to drive the fashion business, while LVMH expects champagne and Hennessy cognac sales would be high this year. He added: “We believe our fragrance and cosmetics sales will continue to excel, and we see good growth in Sephora, especially in the U.S.”
Meanwhile, Pinault-Printemps-Redoute, controlled by Bernard Arnault rival Francois Pinault, is slated to announce its 2000 sales today.