LVMH SALES CLIMB 12%
Byline: Miles Socha
PARIS — LVMH Moet Hennessy Louis Vuitton maintained its double-digit momentum in the first half, logging a 12 percent increase in consolidated sales, to $4.78 billion.
The results were in line with expectations and boosted the stock 7.6 percent Monday to close at $48.29 on the Paris Bourse. Shares in the luxury group had been sinking, up to 4 and 5 percent a day, last week after several investment banks lowered their ratings and rumors swept through Europe about a possible profit warning.
(Dollar figures are converted at current exchange rates.)
A vast second-quarter improvement in the champagne business, which had been dogged by excess stock levels, was among encouraging signs to analysts Monday, since the Moet & Chandon brand is a key generator of operating profits. Second-quarter champagne sales inched up 2.7 percent, compared to a 23 percent drop in the first quarter, although sales for the entire wine and spirits division fell 2 percent, to $721.8 million.
Andrew Gowan, an equities analyst at Lehman Bros. in London, said the numbers suggest that the company is making progress in achieving organic growth rather than gaining revenues through acquisitions. According to his calculations, about a quarter of the business maintained its momentum, while the balance gained momentum.
“Second-quarter sales growth was ahead of our expectations, but our 2001 earnings-per-share forecast remains at the low end of consensus and we don’t intend to increase it,” said Claire Kent, luxury analyst at Morgan Stanley Dean Witter in London.
Among analysts’ top concerns are the impact of the weak yen on sales at DFS and losses at Sephora in the U.S. and at the Phillips de Pury & Luxembourg auction house.
In a research note last week, Goldman Sachs said it expects that LVMH may have more bad news ahead when “the yen weakness since the end of last year starts translating into reduced travel flows from Japan. What is true for the whole sector is particularly true for LVMH, as its retail operation DFS is largely dependent on Japanese tourism flows, and bears a high fixed-cost structure.”
In the half, LVMH logged a 15 percent increase in its selective retailing division, to $1.42 billion, but warned that the weakness of the yen and economic uncertainty “have affected the travel patterns and consumer sentiment of Asian clientele, with a direct impact on results at DFS locations.”
On the plus side, the firm said sales at Sephora rose 37 percent in the first half, with stores in the U.S. logging 10 percent sales growth “even in a difficult business climate.” LVMH said this demonstrates that “the concept is gaining recognition and market share.”
Fashion and beauty remained the bright spots for the group. Sales of fashion and leather goods jumped 18 percent, to $1.48 billion, while fragrances and cosmetics advanced 15 percent, to $879.4 million.
Louis Vuitton, the chief generator of profits at the group, saw sales increase 10 percent in the half, with growth held back only by constraints in production capacity. LVMH said sales improved for other brands “with particularly strong performances for Loewe and Thomas Pink as well as Fendi and Kenzo, which have recently increased control of their distribution.”
The hit perfumes J’Adore, by Christian Dior, and Flower, by Kenzo, continue to power the beauty division. LVMH also cited a strong commercial reception to Dior’s new skin care lines, No Age and IOD. The company said sales in the division outpaced the market, with growth in the U.S. exceeding 25 percent thanks to the “excellent” performance of start-up brands Bliss and BeneFit.
A slower U.S. economy and cancelled manufacturing licenses dented the watch and jewelry division, where sales fell 3 percent, to $222.8 million. LVMH held up hope that ad campaigns for Zenith watches, Chaumet, Benedom and Dior’s new “Chris 47” watch would accelerate volume in the second half.
Separately on Monday, Christian Dior, the holding company which encompasses LVMH and Christian Dior Couture, announced that sales in the first half had increased 12 percent, to $4.90 billion. Sales at Christian Dior Couture jumped 22 percent in the second quarter and totalled $127.1 million in the half.
LVMH reiterated Monday that it maintains its double-digit growth targets for sales and operating profits for the full year. LVMH chairman Bernard Arnault has said he expects signs of a rebound later this year and the group’s near-term prospects are strong. The group has ambitions to double its volume and profitability in five years.
French firms report earnings and sales separately.