LVMH ADJUSTS ESTIMATES

Byline: Miles Socha

PARIS — Hit by an uncertain economic climate in the wake of the Sept. 11 attacks on New York and Washington, LVMH Moet Hennessy Louis Vuitton said it is now aiming for operating profits on par with a year ago, down from its previous target of a 5 to 7 percent increase.
The luxury giant made the adjustment as it announced that third-quarter sales rose 4 percent, to $2.7 billion, a sharp decline in its growth rate from a year ago, when sales rocketed 38 percent.
For the nine months, LVMH maintained its double-digit momentum, but just barely. Sales increased 10 percent, to $7.9 billion. Dollar figures are converted from the euro at current exchange rates.
Fashion and leather goods, perfumes and cosmetics and the selective retailing division were the star performers for the nine months, with sales increases of 16, 12 and 13 percent, respectively.
Group sales in September fell 8 percent, a direct reflection of the terrorist strikes on the World Trade Center and the Pentagon and the ensuing consumer alarm. “There have been tangible signs of improvement during very recent weeks in those areas most directly affected following the attacks,” LVMH said in a statement. “It remains to be seen whether this improvement will continue or if the development of the geopolitical situation will have further negative consequences on the global economy in the short term.”
On the positive side, LVMH cited reduced interests rates, strength in Japan, favorable currency translations, “the dynamism of the group’s star brands” and the capital gains realized from the disposal of some of its Gucci Group shares. For those reasons, it said it maintains its target of doubling its sales and operating profit within five years.
“The group will use this period to accelerate initiatives aiming to improve profitability, to increase productivity and develop new synergies,” the statement said. “By maintaining levels of marketing expenditure, continuing resolutely with its policy for innovation and developing its production capacity in a controlled way, LVMH will be able to strengthen and gain market share, as it has done in previous crises.”
Analysts said the sales figures were in line with market expectations and that they were not surprised by the profit warning.
In a research note for Merrill Lynch in Paris, analyst Antoine Colonna said he had considered the previous targets, declared at an analysts’ conference only two days after the Sept. 11 attacks, as “too optimistic.”
“The shares could be under pressure today following downward consensus adjustments,” Colonna wrote, “but the difficult market has probably priced in, already, a very difficult outlook for the fourth quarter of 2001 and 2002.”
In fact, shares in LVMH rose 6.7 percent, to close at $35.39 on the Paris Bourse.
“The overall picture is below the market expectation,” said Claire Kent, luxury analyst at Morgan Stanley Dean Witter, characterizing the target of flat operating profits as a best-case scenario. Among her concerns are weak demand for champagne in the crucial holiday period.
Sales in LVMH’s fashion and leather goods division fell 5 percent in September, but grew 11 percent in the third quarter. Sales growth at Louis Vuitton was interrupted by the Sept. 11 attacks, but rebounded quickly to year-ago levels in New York. As for the group’s other fashion brands, which include Givenchy, Christian Lacroix, Loewe, Pucci and Celine, “almost all” registered double-digit growth in the third quarter.
The perfumes and cosmetics business, where sales climbed to $1.4 billion in the nine months, continues to outperform the market, LVMH said. Based on the strength of recent launches such as J’Adore by Dior, Flower by Kenzo, Hot Couture by Givenchy and Michael by Michael Kors, the division anticipates double-digit growth for the year.
Reduced tourism, due to the U.S. attacks and the ensuing attacks in Afghanistan, dented sales at DFS in North America, Hawaii, Guam and Saipan, in particular, LVMH said. However, the company noted that sales at Sephora continued to grow in September, despite a “limited impact in certain tourist zones.” Cost reductions and renegotiated airport concessions are among measures to improve profitability at DFS.
LVMH’s watch and jewelry division saw sales decline 9 percent, to $81.8 million in the nine months, with the group blaming canceled manufacturing licenses and weak sales at TAG Heuer and Fred in September for the drop.
Although sales fell 2 percent, to $1.3 billion, in the wines and spirits division, LVMH said cognac sales remain strong in the U.S. and Asian countries and that excess stock levels of champagne in Europe and Japan are returning to normal.
Separately on Tuesday, Christian Dior SA, parent of LVMH and Christian Dior Couture, reported sales growth in line with LVMH: 10 percent in the first nine months, to $8.1 billion. Sales at Christian Dior Couture leaped 16 percent in the period.
Meanwhile, sales of Christian Dior products were up 25 percent in the third quarter. The company noted that Dior sales in September were up 17 percent in spite of the Sept. 11 attacks.

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