LVMH trims forecast after U.S. attacks

The world’s biggest luxury group LVMH Moet Hennessy-Louis Vuitton SA posted a drop in first-half earnings on and trimmed its full-year outlook two days after the September 11 terror attacks in the United States, Reuters reported.

Champagne-to-leather goods group LVMH was pounded lower for a second day on the Paris bourse, losing nearly 11% to a 38.4 euro year-low after coupling a 15% drop in first-half net profit with gloomier full-year projections.

“In view of the situation created by the tragedy that has just struck the USA, the group is adjusting its forecast for operating profit growth in 2001 to a range of between five and 10 percent,” the company said. Its previous goal was for double-digit growth in operating profit this yea, Reuters reported.

At a news conference Chairman Bernard Arnault stuck to his forecast for double-digit growth in sales, and predicted growth in net and pre-exceptional net profit this year, but stressed the difficulty of gauging the consequences of Tuesday’s events, Reuters reported.

Analysts warn the attacks will hurt the sector three-fold through their impact on currencies, spending and tourism, Reuters reported. However Arnault raised the possibility of the U.S. staging a speedy rebound, and did not see any reason for the dollar to necessarily decline. Since such crises typically affect travel plans with a time lag of four to six months, LVMH is unlikely to suffer from a drop-off in crucial Japanese tourism in 2001, Arnault said.

“During the Asia crisis, when there was a consensus on the luxury sector and on LVMH in particular, analysts were advising investors to dump LVMH and others, but in 1999 LVMH was the biggest gainer on the CAC-40 in value terms,” Arnault said.

The luxury giant on Thursday reported a 15% drop in pre-exceptional net profit to 318 million euros (US$284 million), from 374 million (US$334 million) a year ago, hurt by weak champagne sales and widening losses in its selective retail division, Reuters reported.

Operating profit fell 7.1% to 708 million euros (US$633) from 762 million (US$682 million) earlier, on sales up 13% at 5.686 billion, producing an operating margin of 5.6% after 7.4% a year ago.

Net profit matched expectations, but operating profit fell short of consensus. The median forecast from a Reuters survey of eight analysts had predicted net profit before exceptional items down 15.7% at 315 million euros (US$5.082 billion), and a slight rise in operating profit to 777 million euros.

Reuters reported that LVMH, whose brands include designer Givenchy, Louis Vuitton luggage and Moet & Chandon champagne, said the profit slowdown in the first half would be “substantially compensated for in the second half of the year, ” adding sales in July and August had risen 15%.

It reiterated its medium-term target to double sales and operating profit within five years, Reuters reported.

Operating losses at LVMH’s selective retail arm, which includes DFS and cosmetics retailer Sephora, widened to 92 million euros (US$82.2 million) from 21 million (US$18.7 million) previously.

“We had a small loss in the first half but I don’t see why it would not be profitable in the full-year,” LVMH Managing Director Myron Ullman said, pointing to the end of a high-cost concession in Hawaii and of renovations at its Waikiki store.

Analysts’ second main worry centered on LVMH’s “other” division, including auction house Phillips, whose first-half operating loss doubled to $117 million from $58 million last year, Reuters reported. Ullman said investment at Phillips totaled between 40 and 50 million euros; analysts had penciled in a 50 million loss.

Operating profit in wines and spirits was flat at 220 million euros (US$197 million) due to ongoing over stocking, while it rose 13% to 634 million (US$566 million) in leather goods. Those are LVMH’s twin growth engines, together accounting for 50% of sales.