LVMH Mo�t Hennessy Louis Vuitton, the world's leading luxury products group, today announced operating income of 708 million Euros for the first half of 2001, compared to 762 million Euros during the same period of 2000. The slight slowdown in profit in the first half, which was expected, will be substantially compensated for in the second half of the year. The Wines and Spirits, Fashion and Leather and Perfumes and Cosmetics business groups, traditionally strong profit drivers, performed excellently during the first half. Excluding Selective Retailing and Other Activities, whose results essentially reflect investments made in their development, growth in operating income reached 9%. First half sales rose by 13% despite an uncertain economic climate in several global markets. The Group is continuing to perform well in the second half.
The first half of 2001 was notable for:
– A sustained level of organic growth in a more difficult economic climate – Excellent performances in Fashion and Leather, Perfumes and Cosmetics, Cognac
– A continued increase in market share
– Concentration on internal growth and cash flow
– Significant investments in promotion and store openings, sources of future growth
– Reduction of heavy retail stocking levels of champagne
– Increased production capacity at Louis Vuitton towards the end of the first half
– The Group launched a number of initiatives during the first half, to improve cash flow, the first important illustration being the disposal of the Gucci stake, with a return of 14 billion francs (2.1 billion Euros) due before the end of the year. Commenting on these results, Myron Ullman, Group Managing Director said: "Our brands continue to perform excellently, even though growth in the global economy has weakened. LVMH achieved record results in 2000, it will continue to grow in 2001 and it has unique assets to continue its sustained growth. Thanks to the exceptional quality of our products, the strength of our brands and the flexibility of our structure, LVMH is set to build further on its position as the global leader in luxury goods in 2001, despite less promising trends in the global economy".
The Wines and Spirits business group maintained profit levels in the first half of 2001 by improving its operating margin even though champagne has not recovered.
The difficult economic environment, particularly in the US, has weighed on sales and operating profit for Champagne and Wines. In a market affected by heavy stocking levels, LVMH brands maintained their prices and increased spending on advertising and promotion, thereby increasing their market share. The champagne division continues to pursue its strategy of developing premium cuvées, such as La Trilogie des Grands Crus, and is expanding its presence in emerging markets.
Following continued increase in demand, notably in the US and China, Cognac operating profits reached 147 million Euros, a 29% increase over the first half 2000. Emerging countries such as Russia, Korea and Vietnam are also showing promising growth. New quality products such as Hennessy Classique, Private reserve and Paradis Extra are contributing to the development of the brand worldwide.
The Fashion & Leather Goods business group recorded an increase of 13% in operating profit, a particularly impressive achievement considering the 52% increase last year. With the extraordinary success of its products and improving profitability, Louis Vuitton is enjoying success of unprecedented proportions. A progressively improving production capacity together with an increasing number of global stores bode well for Louis Vuitton in the second half of the year. Céline and Loewe continue to develop and market new product lines and extend their distribution network. The Fashion brands as a whole are making a positive contribution to the business group's profitability and have increased their distribution networks.
The Perfumes & Cosmetics business group increased its operating profit to 48 million Euros in the first half of 2001, 15% higher than the first half of 2000. This sales growth is three times that of the industry overall and a record compared to other competitors. This exceptional performance is mainly due to our policy of continuous innovation with the considerable success of products such as J'Adore by Christian Dior, Flower by Kenzo and, in the US, Michael by Michael Kors. New product launches continue, most notably with the new male fragrance, Higher, by Dior, as well as Addict lipstick.
The Watches & Jewelry business group voluntarily lowered its operating profit, following the decision to terminate certain manufacturing licenses companies outside the Group. The first half saw a number of new product launches : Ebel's Classic Wave and 1911, Chaumet's Night Spirit and Christian Dior's Chris 47. TAG Heuer focused on its Classic and Alter Ego lines while Zenith launched on the US market. Integration of the companies within this business group continues as planned with improvements in the global distribution network and manufacturing capabilities.
This business group has not yet reached profitability for one main reason: the very rapid establishment of the Sephora store network in the US. Despite the economic climate, Sephora has registered excellent growth. Sephora is by far the fastest growing perfume and cosmetics retailer in the US market (20%) on a comparable store basis. Having reached critical mass in the US, the extraordinarily intensive programme of investment in Sephora, which has until now weighed on profitability, will no longer be necessary on the same level. At DFS, the impact of the improved conditions of the Hawaii concession will be palpable in the second half. Measures taken to lower breakeven level at DFS are bearing fruit, which is why DFS will be profitable this year.
The Group's excellent sales growth has continued since 30 June 2001. In July and August sales increased by 15%, confirming very strong demand for the Group's products, despite the general economic environment.
The second half of the year should benefit from increasing production capacity at Louis Vuitton, better demand for Champagne, the more favourable terms of the DFS Hawaii concession and higher levels of currency cover.
However, in view of the situation created by the tragedy which has just struck the USA, the Group is adjusting its forecast of operating profit growth in 2001 to a range of between +5% and +10%. LVMH also anticipates growth in net income from current group operations and Group net income for the year. We must stress, however, the great difficulty of evaluating the economic consequences of recent events, at this stage.
A number of positive factors should, however, be evident in the next 18 months and shape the Group's progress in 2002.
– the recovery of champagne and positive trends for cognac
– the perennial success of Louis Vuitton and its spectacular growth
– the continued success of perfumes and cosmetics, with new launches
– improved profitability at DFS
– the very palpably improved profitability of activities currently in an investment phase as of 2002 (Sephora US, Phillips, internet activities)
– reduced financial costs
– good levels of currency cover
We reiterate that our medium term growth target is to double sales and operating income in less than 5 years.
An interim dividend of 0.22 Euro will be paid on 4 December 2001