FRANCE. The world’s leading travel retailer, DFS Group, is still on course to reach break even point this year, despite being hurt badly by the drop in Asian tourism this year.
The news came amid parent company LVMH Moët Hennessy Louis Vuitton’s first half results for the period ended 30 June 2003, announced this morning.
DFS results, as always, are not broken out individually, but included in the Selective Retail division, which also embraces perfumery chain Sephora. Selective Retailing losses improved from €39 million (US$43 million) in the first half of 2002 to €15 million (US$17 million) in the first six months of 2003.
LVMH said: “DFS has been strongly affected by the drop in Asian tourism. It has therefore accelerated its cost-reduction measures, notably the costs of airport concessions, while continuing to improve the quality and the competitiveness of its merchandising. Its objective to break even in 2003 is maintained.”
Sephora saw a “significant improvement in its operating results over the first-half, reflecting a rigorous cost management policy in Europe and exceptional performance in the US”. The double-digit sales growth of Sephora in the US in the first half reinforces its objective to be profitable in 2003.
LVMH, the world’s leading luxury products group, announced that 2003 first-half operating income grew +4% to €874 million (US$961 million) compared to €840 million (US$924 million) in the first half of 2002.
It said: “This growth comes on top of a +19% increase in operating income in the first half of 2002, making it all the more remarkable given the difficult environment, marked by the fall in the dollar and the decrease in tourism which resulted in many competitors announcing significant falls in the same period.”
The net income of the Group increased by +24%. This strong growth can be explained by a combination of improved operating profitability and reduced financial expenses.
Evolution of operating income by business group in millions of Euros:
Category: First half 2002: First half 2003:
Wines & Spirits: 277 in 2002; 321 in 2003;
Fashion & Leather Goods: 646 in 2002; 634 in 2003;
Perfumes & Cosmetics: 30 in 2002; 39 in 2003;
Watches & Jewellery: (7) in 2002; (38) in 2003;
Selective Retailing: (39) in 2002; (15) in 2003;
Other activities and eliminations: (67) in 2002; (67) in 2003;
TOTAL: 840 in 2002; 874 in 2003;
Highlights of the first half of 2003 were:
• Organic growth of LVMH Group sales,
• Growth in market share of all the leading brands,
• Double-digit organic growth for Louis Vuitton in the first half of 2003, at maintained margins – “a unique performance in the luxury goods sector”.
• Significant investment to revitalize Fendi and Donna Karan,
• A strong increase in the Group’s operating margin, which reached 17% compared to 14% in the first half of 2002,
• A +37% increase in cash flow from operations, particularly remarkable when compared to the first half of 2002, when growth was +27%,
• Reduction in net debt of more than €1 billion year over year, leading to a decrease in financial expenses,
• Control of administrative costs to the benefit of communications expenses which have been increased for the Group’s leading brands.
• Effective hedging activities.
Here is a breakdown of performance by sector:
Wines & Spirits: further increase in operating margin
Wines and Spirits reported a +16% increase in first half operating income, thanks to the strong performance of Moët & Chandon and Veuve Clicquot, particularly in the UK and Japan. Hennessy also delivered a strong improvement in operating income due to its sustained growth in the US, which has more than compensated for the effect of SARS in Asia.
Successful hedging has meant the impact on operating income from the fall of the dollar and the yen was limited. A firm pricing policy and the growing efficiency of the distribution networks have also contributed to these exceptional results in the difficult first-half operating environment.
Fashion & Leather Goods: outstanding performance from Louis Vuitton
Within a difficult climate, the Fashion and Leather Goods business group maintained operating income at a level comparable to that of 2002. The operating margin improved to 33%. Louis Vuitton increased its investment in communications and store openings and maintained its exceptional profit margin, unique in the luxury goods sector.
Sales to local customers have shown strong growth, reflecting a dynamic policy of innovation and quality. Tambour watches, one year after launch, have seen considerable success. The new Suhali goatskin leather line is already generating waiting lists, like the products created by Marc Jacobs with Takashi Murakami. Louis Vuitton had 308 stores at June 30th 2003, with nine net store openings in the course of the first half. The new store on Avenue Montaigne in Paris opened in August and a new store concept has just been inaugurated in Tokyo.
Supported by a new advertising campaign, Fendi has implemented a bold strategy, centered around its core business of leather and fur. Donna Karan continued to reorganize its distribution network to establish a solid basis for profitable growth. Céline recorded a strong performance, supported by the success of its new Boogie and Poulbot bags. Other brands such as Marc Jacobs, Pucci and Berluti showed a double-digit rise in sales during the first-half on a constant currency basis.
Perfumes & Cosmetics: several launches in the second half
The Perfumes and Cosmetics group showed a rise of 30% in operating income, notably due to its performance in growing markets such as Japan and Korea. It is worth noting that most profits are typically achieved in the second half of the year.
The new skincare range Capture R60/80TM by Parfums Christian Dior, launched in January 2003, also contributed to this progress. In the spirit of refocusing investments in strategic brands, the American licences of Michael Kors, Marc Jacobs and Kenneth Cole have been sold. In the second half, new women’s fragrances Very Irresistible by Givenchy and L’Instant de Guerlain and new men’s fragrances Higher Energy by Parfums Christian Dior and KenzoAir will be launched.
Watches & Jewellery: return of sales growth in June
The LVMH brands have returned to growth in June after a start of year marked by stock reductions in multi-brand shops. With the global watch and jewelelry market particularly difficult in the first half of 2003, the Watches and Jewellery group has invested in communication and accelerated the development of new products. Chaumet and Christian Dior have both recorded excellent performances with double-digit sales growth in the first half. Numerous new products, notably from TAG Heuer, Zenith, Chaumet and Ebel will be delivered, beginning in September.
Selective Retail: improvement in results
DFS has been strongly affected by the drop in Asian tourism. It has therefore accelerated its cost-reduction measures, notably the costs of airport concessions, while continuing to improve the quality and the competitiveness of its merchandising. Its objective to breakeven in 2003, is maintained.
Sephora saw a significant improvement in its operating results over the first-half, reflecting a rigorous cost management policy in Europe and exceptional performance in the US. The double-digit sales growth of Sephora in the US in the first half reinforces its objective to be profitable in 2003.
2003 Outlook
Sales during July and August 2003 confirm the signs of recovery observed in June in the majority of our activities. Louis Vuitton in particular continued to show double-digit organic growth while the level of tourism has increased in relation to preceding months. Following the rise in the dollar this summer and the progressive but real recovery in tourism we foresee a favourable trend until the end of the year. All these elements enable us to confirm our objective of a tangible growth in operating income for the Group in 2003.
The launch of new products, supported by active communication, our strict policy of quality in all our products, and the incomparable dynamism and creativity of our teams, will allow us to further reinforce the leadership of the LVMH Group in the global luxury goods market in 2003.
