Lvmh First-Half Profit Rises

The group said profit excluding exceptional items climbed 5.4 per cent to FFr1.54 billion ($299.3 million) on sales of FFr13.37 billion, but operating income fell more than 10 per cent to FFr2.61 billion in the first half.

The fall was due to a slump in operating income of the perfumes division to FFr70 million from FFr380 million as the group battled to keep Christian Dior perfumes out of the gray market which supplies discount outlets via independent distributors.

Investors, disappointed by the mixed results at one of France's most successful companies, hammered LVMH's stock. It closed 3.9 per cent lower at FFr1,058 after having fallen 2.8 per cent on Wednesday.

 

The company, whose brands range from Pommery champagnes to Hennessy cognacs and Louis Vuitton luggage, said operating income in its luxury leather goods, cognac and champagne divisions rose in the first half.

Cognac sales stabilised in Japan after a long decline, luggage sales were brisk in the summer and champagne sales were raised by recent price increases. The company said the perfume division's results should improve in the second half of the year, helped by the launches of the Givenchy perfume Organza, Champs-Elysees from Guerlain and Magic from Celine.

It has campaigned against grey market sales by being more selective in supplying distributors to tighten control over selling prices and protect its fat profit margins.

LVMH said it maintained its objective for sales and profit growth for the full year, but several analysts said they would reduce their 1996 and 1997 profit forecasts for the group. Cedric Magnelia at investment bank CS First Boston said he would lower his 1996 earnings estimate from FFr4.4 billion to close to last year's profit excluding exceptionals of FFr4.05 billion.

Analyst Sylvain Massot at Morgan Stanley said he was cutting his 1996 profit growth estimate to five per cent from 10 per cent and would trim his 1997 forecast to show growth of about seven per cent, instead of 10 per cent.

Previously we had a letdown with the (sales) volumes. Now it's the margins that are disappointing despite currency hedging,