PARIS — Evidence of a second-half comeback by the luxury sector continued to mount Tuesday with better results from LVMH Moët Hennessy Louis Vuitton and continued strength from Burberry.

LVMH recorded a 3.3 percent decline in third-quarter sales, but the figures for the three months were stronger than the 8 percent decline registered in the nine months, an indication of the recent pickup in sales. Excluding the effects of currency fluctuation, sales for the year-to-date rose 3 percent, LVMH said.

This story first appeared in the October 15, 2003 issue of WWD. Subscribe Today.

The numbers checked out at Burberry as sales during the first half rose 17 percent, with a 25 percent increase logged in retail sales.

The parade of European luxury numbers is expected to continue today as analysts ready themselves for second-quarter results from Gucci Group that are expected to show relatively stable sales but a double-digit dip in profitability.

Antoine Colonna, luxury analyst at Merrill Lynch in Paris, said there’s been a pickup in several key drivers of the luxury sector: global economic growth, consumer confidence and the “feel-good factor,” plus the appreciation of the yen. All of these factors bottomed out in the second quarter.

Data for September are mixed, he cautioned, but “should continue to improve. The travel flow data we get are constantly improving.”

Colonna also noted that the outlook generally is better for makers of “soft” luxury products like leather goods, whereas watchmakers have been hit by a weak dollar and high gold prices.

Burberry’s results reinforced the positive view of the luxury sector by Melanie Flouquet, analyst in charge of European luxury goods coverage at J.P. Morgan in London.

“There have been positive signs in the luxury goods sector since June, and there has been a visible pickup in Asia — excluding Japan — and the U.S.,” she said. “In the U.S. and Asia, there has been a strong local demand, while the Chinese traveler spending money in Hong Kong has also helped. But overall, Japanese tourist flows are still below last year’s levels.”

However, with the SARS epidemic, global terrorism and military action in Iraq no longer dominating the consumer psyche, purchasing by the affluent and the acquisitive appears to be returning to pre-9/11 levels, if not necessarily those of the late Nineties.

Sales at LVMH Moët Hennessy Louis Vuitton fell 3.3 percent in the third quarter ended Sept. 30 to $3.43 billion, versus $3.55 billion a year ago, but the French luxury goods giant said it maintains a bullish outlook for the balance of the year.

The quarterly figures compare favorably to those for the nine months, when group sales fell 8 percent to $9.56 billion. Dollar figures are converted from the euro at current exchange. In local currency, LVMH reported sales of 8.17 billion euros in the period. Stripping out the impact of currency fluctuation, organic growth was 3 percent in the nine months.

“We are very optimistic for the last quarter, even if our growth in the period last year was 13 percent,” Patrick Houel, LVMH’s chief financial officer, said during a conference call with analysts Tuesday.

“Tourism levels have continued to improve in October and there appear to be signs of a sustained economic recovery in the U.S. and Japan,” LVMH said in a statement. “The group expects this momentum to continue in the fourth quarter.”

The results were above the expectations of analysts, who were encouraged by the fact that organic sales growth stood at 6 percent in September, accelerating from 5 percent in July and August. Morgan Stanley analyst Claire Kent noted “there were positive surprises in all divisions other than fragrance and cosmetics and selective distribution.”

Louis Vuitton, which contributes about 65 percent of group profits, remained the engine of the group, with third-quarter organic sales up by double digits in every region of the world except France, where a dearth of tourists in Paris slammed sales at the usually bustling Champs-Elysées flagship.

Houel told analysts he based his optimism for Vuitton on the fact that tourism is rebounding and production capacity has increased for hot products like watches and multicolor monogram bags. He also noted that the yen is gaining strength and Vuitton has expanded its store network versus a year ago.

Kent also noted that Vuitton should have a positive reception to its spring 2004 line unveiled on the runway in Paris on Sunday. It featured many new variations on its signature monogram leather goods in honor of the firm’s 150th birthday next year.

During the conference call, LVMH highlighted a “good sales performance” at Fendi and Celine and cited double-digit growth in the nine months at Marc Jacobs and Berluti.

Peppered later with questions about Fendi, which on Monday named Michael Burke, formerly second in command at Christian Dior, as its new chief executive, Houel made it clear that LVMH plans to continue to invest in the Rome-based house. He said profitability is several years away.

In the nine months, all divisions saw sales fall in reported terms, with watches and jewelry and selective retailing also registering organic sales declines.

Fashion and leather goods revenues slipped 3 percent to $3.43 billion, or 2.93 billion euros. Sales of perfumes and cosmetics dropped 9 percent to $1.73 billion.

At LVMH’s selective retail division, sales slipped 12 percent to $2.43 billion. However, the company cited a “gradual recovery in tourism levels” and said the duty-free chain was on track to break even for the full year.

By geographic region, LVMH said that organic sales in the U.S., excepting Hawaii, were up 6 percent in the first nine months. Houel noted that Vuitton sales were up 29 percent in the region, versus 5 percent for fashion and leather goods.

Asked about the discrepancy in sales performance, Houel said the shutdown of underperforming Donna Karan boutiques and outlets was largely to blame.

In Japan, sales were up 14 percent in local currency in the nine months, with Vuitton sales advancing 18 percent.

French companies report sales and earnings separately. LVMH’s net profits jumped 23.8 percent to $297 million in the first half, versus $239.8 million a year ago, as reported.

On Monday, LVMH said it maintains its objective of “tangible growth” in operating income for the full year, but declined to elaborate. Merrill Lynch is forecasting an 8.1 percent increase in EBIT — earnings before interest and taxes — to $2.54 billion, or 2.17 billion euros, for 2003.

Shares in LVMH slipped 0.4 percent to close at $67.74 on the Paris Bourse.

A vigorous U.S. market and three store openings boosted Burberry Group plc’s revenues 17 percent in the first half ended Sept. 30, the company said in a statement, to $531.6 million from $454.3 million. Burberry’s figures have been converted from the pound at current exchange. Reported revenues were 320.2 million pounds versus 273.7 million pounds in the year-ago half.

Separately, Burberry announced plans to open its first Russian unit, on Moscow’s Stoleshnikov Pereulok, early next year. The Moscow unit will be one of six new Burberry stores to open in the second half of the fiscal year.

The company’s revenue growth was powered by a 25 percent rise in retail sales to $177.6 million, or 107 million pounds, from $142.1 million, or 85.6 million pounds, and a 14 percent climb in wholesale sales to $304.4 million, or 183.4 million pounds, from $267.1 million, or 160.9 million pounds.

Wholesale results benefited from a pickup in sales in Spain, where a repositioning of the brand began to pay dividends.

Licensing revenue grew 15 percent to $51.9 million, or 31.3 million pounds, from $45.2 million, or 27.2 million pounds.

Burberry’s retail sales accounted for approximately 33 percent of total revenue in the first half, and were driven mostly by new store openings, with “a marginal contribution” from existing stores.

“Burberry traded strongly in the first half as the improved conditions at the end of the first quarter continued,” said Rose Marie Bravo, chief executive of the company, in a statement. “Our retail investment, geographic expansion and product development strategies continue to deliver excellent results.”

She said the performance through the first six months suggests that Burberry’s results are “clearly in line with market expectations for the financial year.”

J.P. Morgan’s Flouquet said she is projecting a 12 percent rise in Burberry’s first-half profits to $109.6 million, or 66 million pounds, and a 13 percent rise in yearend profits to $219.1 million, or 132 million pounds.

Flouquet said Burberry’s sales numbers were strong, marginally higher than she’d projected, but better than consensus estimates. She said the improvement in Spain was a clear indication of Burberry’s success in reconfiguring perceptions of the brand after four quarters of decline in that market.

“The rise in sales there is a good sign that its repositioning is working,” she said. “In that market, Burberry is establishing itself as more upscale thanks to a directly operated store in Barcelona, for example, and a number of small, test concessions within El Corte Ingles.”

Burberry said the U.S. was consistently the best performing market in the period, while Burberry’s other markets generally experienced “varying degrees of recovery” during the half.

During the half, Burberry opened three new stores — Milan, Tysons Corner, Virginia, and a second Las Vegas unit. The company remains on schedule to open six more stores during the second half — Moscow, Hong Kong, Singapore, Kuala Lumpur, Malaysia and Melbourne.

As reported, there are also plans to open a second Tokyo flagship in the spring. The 6,000-square-foot store will be in the Omotesando district and is scheduled to open in April. By the fiscal year’s end, total retail selling space will have grown more than 10 percent.

The 5,000-square-foot Moscow store will be operated through a franchisee relationship with Jamilco ZAO.

“We have had a wholesale presence in Moscow for some years,” Bravo said in a separate statement, “and this prime retail location in one of the city’s most distinguished shopping areas gives us an exciting opportunity to showcase our comprehensive product portfolio to the region’s sophisticated customer base.”

Meanwhile, wholesale sales growth was driven by double-digit gains for the fall 2003 season, with the improvement in Spain a highlight. Burberry said it was expecting mid- to high-single digit wholesale sales growth for the spring 2004 season.

Licensing revenues from the Japanese market benefited from increases in certain royalty rates and single-digit volume gains. Overall, the licensing division was helped by strong sales gains in global product licensees, including fragrance, eyewear and children’s apparel.

The company is expected to announce earnings results on Nov. 18 and provide a trading update on third-quarter sales on Jan. 13, 2004.

Shares of Burberry fell 1.3 percent on the London Stock Exchange to close at $6.16.

Gucci’s results today are expected to exhibit the tough first half many luxury goods companies have had, although Gucci chief executive officer Domenico De Sole has said recently that sales rebounded in August and September. Morgan Stanley said net profit for the quarter ended July 31 should drop by 59.4 percent to $20.8 million, or 17.8 million euros, while group sales should decline 0.9 percent to $669.2 million, or 571.7 million euros.

Kent said Morgan Stanley expects sales at the Gucci division to fall 5.7 percent as a 10.7 percent negative currency effect erases a 5 percent increase in organic growth. Strength in leather goods would pave the way for “a substantial improvement” in first-quarter sales, which dropped 13.7 percent.

Speaking on condition of anonymity, one analyst noted that the negative effects of aggressive markdowns, high communications expenses and increasing losses at YSL will hurt the bottom line.

Lehman Brothers forecast a 16 percent decline in earnings before interest, taxes and appreciation to $60.9 million, or 52 million euros, although the bank added in its report that “results may be lower than expected due to the high level of volatility in the quarter, owing predominantly to a difficult travel environment and to currency.”

Group sales are seen coming in 1 percent higher at $684.7 million, or 585 million euros, while sales at the Gucci division are seen growing 1 to 8 percent excluding foreign exchange effects, according to Lehman Brothers.

“On a geographic basis, we expect Gucci division revenue to reflect double-digit growth at constant exchange rates in both Japan (10 percent) and the U.S. (16 percent) and we expect Europe to post a 3 percent decline due to the impact of low tourism on the region,” said the bank.

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