Byline: Miles Socha / With contributions from Robert Murphy

PARIS — If there are potholes on the road to luxury, LVMH Moet Hennessy Louis Vuitton has yet to hit or even approach them.
The luxury powerhouse sustained its 1999 momentum during the first half of 2000 as sales leaped a record 40 percent, to $4.8 billion. It cited strength across most of its divisions and all global markets, with sales increasing 39 percent in the first quarter and 41 percent in the second, and it forecast an upward trend for the rest of the year. Only champagne sales — still recovering from post-millennial hangover — fizzled.
The conglomerate said group sales were up 37 percent in Europe, 68 percent in the U.S and 38 percent in Asia.
Earnings for the half will not be reported until Sept. 14. LVMH shares closed up 2 percent to $85.22 on the Paris Bourse. (Dollar figures have been converted at current exchange.)
Patrick Houel, LVMH’s chief financial officer, noted that roughly 16 points of the 40 percent increase were attributable to recent acquisitions, notably the watch brands TAG Heuer, Ebel, Chaumet and Zenith and niche cosmetic firms Bliss, Hard Candy and BeneFit Cosmetics. Twelve points were due to the strength of U.S. and Japanese currencies.
The stellar sales growth in the U.S. reflected the overall health of the economy, Houel said. But the numbers were also boosted by the January acquisition of Miami Cruiseline Services, the world’s largest provider of duty-free retail shops to the cruise industry, which added about $300 million in sales to LVMH’s selective retailing division.
Luxury analysts deemed the remaining 10-point increase, all generated by existing businesses, a strong performance for the diverse luxury concern.
“The figures were good in all divisions except champagne,” said Jacques-Franck Dossin, executive director of international equity research at Goldman Sachs in London. “The margin mix continues to improve between the divisions.”
Dossin said the strong sales momentum in the fashion and leather goods divisions, headlined by accelerated sales at Louis Vuitton, suggests the French group is gaining market share. Division sales in the period reached $1.37 billion.
Claire Kent, chief luxury goods analyst at Morgan Stanley, noted that three of LVMH’s key divisions — selective retailing, fashion and leather goods and watches and jewelry — exceeded her expectations.
She said the strong yen, the bull market and a positive mood among consumers have boosted LVMH and the luxury market in general.
Still, Kent questioned whether LVMH would be able to match its first half results for the balance of the year. “Luxury continues to boom, but there’s a big question mark whether the booming luxury environment is sustainable,” she said.
Asked if he was concerned about signs of a slowdown in consumer sales in the U.S., LVMH’s Houel said, “We have not seen any signs of a slowdown in consumption, and we have a good geographic balance between the Far East, Europe and the U.S.”
He noted that Europe accounts for 36 percent of LVMH’s sales. The Far East represents 34 percent, North America 25 percent and the remaining five percent comes from other markets.
“We think the momentum will continue,” he said, noting that LVMH has not altered its projections of a 20 percent increase in operating profits for the year.
He said the group expects sales of champagne to rebound in the second half and fragrance launches this fall at Christian Dior, Kenzo and Givenchy to contribute to its sales growth.
Houel declined to provide any sales results for the group’s two prominent e-commerce sites,, which launched last month, and, which went live last fall. He would only reiterate that the group expects the sites to be profitable within three years.
Yves Carcelle, president of the fashion and leather goods business group at LVMH, was all smiles at the Christian Lacroix show here Tuesday afternoon. After all, his division posted an increase of 40 percent for the half, matching the overall group’s performance.
The star brand of the group remains Louis Vuitton, whose sales catapulted 50 percent.
Carcelle said consumer demand is strong for a wide range of Louis Vuitton products, from its etched leather Epi collection to footwear and men’s ready-to-wear. He noted that there are now 271 Louis Vuitton stores internationally, including new units in Munich and China.
The company also cited strong sales growth at Celine and Loewe thanks to new products and the opening of new or renovated stores. Carcelle noted that sales in revamped stores have jumped an average of about 30 percent.
Other brands in LVMH’s fashion and leather goods stable include Christian Lacroix, Kenzo, Givenchy and Pucci. Carcelle noted that the first-half sales figures do not include Fendi, in which LVMH — in a joint venture with Prada Holding BV — acquired a majority stake last October. The deal closed officially last week.
Carcelle declined to provide sales breakdowns for the other brands, but he said, “Most of our brands will enjoy growth of 20 percent” for the year. “You cannot achieve 40 percent growth if everyone is not contributing.”
In other LVMH divisions, fragrance and cosmetics advanced 22 percent, while selective retailing, which includes DFS and Sephora stores, rocketed 59 percent. The company singled out the strong performances of four new fragrances: J’Adore by Christian Dior, Time for Peace by Kenzo and Oblique and Indecence by Givenchy. It also noted the “strong” sales growth of its clutch of recently acquired niche cosmetics brands Bliss, BeneFit, Hard Candy, Urban Decay, and Make up For Ever, which are geared to young women.
Sales of wines and spirits declined slightly to $825 million from $830 million last year. Despite weak champagne sales, the group was upbeat about cognac sales, which rose 16 percent.
The group’s new watch and jewelry division, which also includes the recently acquired Omas luxury writing instruments firm, registered $256 million in sales.
In the selective retailing division, DFS grew 31 percent, due to the increased number of Japanese tourists, an LVMH spokesman said. The group did not specify the sales increases at Sephora, which currently has 334 stores.
The strong half follows a stellar 1999 for the group, when revenues rose 23 percent to $8.58 billion and net profits more than doubled to $665 million. Last year signaled an end of the Asian crisis for LVMH, which had a lackluster 1998, when sales fell 5.4 percent to $6.9 billion.
In separate news on Tuesday, Bernard Arnault emerged the victor in a bidding fray for a license to install and operate wireless local loop networks. Groupe Arnault, the LVMH chief’s private investment arm, joined forces with French utility giant Suez Lyonnaise des Eaux in a consortium that beat out bidders including Arnault’s archrival, Francois Pinault.
An LVMH spokesman confirmed that the consortium won the license, which will enable Arnault and Suez to offer services suitable for basic phone use, cellular phone use and Internet access more cheaply than France’s dominant operator, France Telecom.
In another development, the Louis Vuitton unit reported it was building a new leather goods factor in Ducey, located in western France, to help meet demand for its signature Monogram Vernis line.
“Our accessories business — especially in vernis bags — is booming,” said a spokesman for the company. “We expect the accessories business to keep growing, so the creation of the new factory was vital to supply demand.”
The new plant is expected to be operational by January 2002 and employ 281 people.
Over the last ten years, Louis Vuitton has built two new factories, creating 550 jobs. Currently, the firm employs 6,700 people worldwide, including 2,900 in France.

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