LVMH, the world's largest luxury goods group, affirmed its confidence in achieving a significant rise in 2007 results as it reported its flagship Louis Vuitton brand had returned to growth in Japan.
"The prospects for the second half are very good. We still have to be prudent about currencies ... but we can confidently confirm a significant rise in our operational results for the whole year," LVMH Chairman and Chief Executive Bernard Arnault told a news conference on the company's first half results.
The maker of Dior perfume and Dom Perignon champagne said net profit in the six months to June 30 was 834 million euros ($1.15 billion), up from 817 million euros a year earlier and despite lower capital gains on asset sales.
First half profit from recurring operations rose 11 percent to 1.440 billion euros on sales of 7.412 billion euros, a like-for-like increase of 12 percent. Analysts polled by Reuters had on average forecast operating profit of 1.413 billion euros on sales of 7.389 billion euros.
All the group's divisions reported double-digit organic sales growth, led by a 23 percent jump in demand for watches and jewellery, such as Dior Black Sapphire Christal watches costing 18,000 euros ($24,710) each. LVMH said demand for some TAG Heuer watches was so strong that it faced shortages in production in the second half.
But it was news that leather goods and fashion arm Louis Vuitton, the company's cash cow, had returned to growth in Japan that grabbed analysts' attention. LVMH had cautioned Vuitton was likely to have a "flat" performance in 2007 after a negative start to the year.
However Yves Carcelle, head of LVMH's fashion and leather goods division, said demand turned positive in the second quarter, helped by the end of delivery problems for products made in "Damier Azur," new baggage lines and store openings.
Carcelle said three-quarters of the growth was in premium products - whereas LVMH had previously said it was pinning its hopes on rejuvenating entry level ranges.
That chimed with news from arch rival PPR on Thursday that it was the most expensive luxury products in its Gucci and Bottega Veneta brands that were doing best in Japan.
Carcelle said he was optimistic growth would continue for Vuitton in Japan in the second half even after a 5 percent price increase implemented world-wide this month to offset the earnings impact from the slide in the dollar and yen.
Arnault said currencies remained the only dark cloud hanging over the second half, noting however LVMH was fully hedged and he expected demand from emerging markets to remain strong.
Currencies sliced 60 million euros off first half operating profit and Chief Financial Officer Jean-Jacques Guiony said the full year impact would likely be greater. The company said it had already covered around half its hedging need in dollars and yen for 2008 and had also begun covering 2009.
LVMH cut its net debt by 800 million euros to 3.8 billion euros, or 32 percent of equity from 44 percent a year ago. Arnault dismissed analyst speculation, however, that LVMH might soon re-leverage by distributing a bonus dividend.
"For now we will continue to reduce the debt. If we get rid of it all in 1 or 2 years then we will see what to do with the cash," Arnault said. He also declined to comment on reports of LVMH interest in jewellers Tiffany & Co and French beauty group Clarins. "We don't comment on rumours," he said.
In addition to cash, LVMH has 4 billion euros in undrawn credit lines. LVMH shares closed down 2.2 percent at 80.25 euros on Thursday. Based on that price, the stock has risen by around 0.4 percent since the start of 2007, less than a 2 percent gain in France's benchmark CAC-40 index.
Comments
Comments are closed.