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LVMH to Adjust Vuitton Strategy Amid Stable Leather Sales Growth

LVMH Full-Year Profit Increases 13% on Gains in U.S. and Asia
A pedestrian walks past a Louis Vuitton store in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

LVMH Moet Hennessy Louis Vuitton SA said it will adjust its strategy at Louis Vuitton, its biggest brand, after reporting no improvement in the pace of sales growth at its fashion and leather-goods unit.

Organic sales at the business rose 5 percent in the fourth quarter, the company said, the same pace as the previous three months when a weaker performance at the unit caused LVMH to report the slowest quarterly revenue advance since 2009. Operating profit from recurring businesses climbed to 5.92 billion euros ($8.04 billion), LVMH said yesterday, in line with analysts’ estimates.

Vuitton, which generates the bulk of the fashion unit’s sales, won’t seek revenue growth “at all costs,” LVMH Chief Executive Officer Bernard Arnault said. The brand will improve existing stores and open “far fewer” new ones as it seeks to control its growth. The bagmaker will also focus on service and increase the penetration of leather goods and non-logoed products.

“We continue to question the longer-term growth outlook for Louis Vuitton and see better value elsewhere,” said Allegra Perry, an analyst at Cantor Fitzgerald who recommends holding the shares. She prefers Gucci-owner PPR SA.

Arnault said he remains confident for the overall business climate in 2013 “because the world is growing,” while cautioning that currency trends are the “only shadow” to that outlook. LVMH will raise prices, starting in Japan, if the euro’s appreciation against the dollar and the yen hurts exports, he said.

‘Pretty Reassuring’

The fashion and leather goods “division is definitely the main source of disappointment,” said Thomas Mesmin, an analyst at CA Cheuvreux. Still, “Mr. Arnault was pretty reassuring regarding the outlook for 2013.”

The shares gained 0.5 percent to 139.50 euros at 11:27 in Paris after earlier falling as much as 2.1 percent. The stock is littled changed this year, giving the company a market value of 70.8 billion euros.

“Of course it would be easier for Louis Vuitton to boost its revenue, all it would take would be to launch 10 new products with the monogram product, but down the road it’s not a good strategy,” Arnault said. “There is no real change, just an adjustment to the strategy, but Louis Vuitton wishes to focus on the long term.”

Hennessy Cognac

All divisions boosted earnings as wealthy consumers continued to increase spending on items such as Hennessy cognac, Tag Heuer watches and Christian Dior perfumes. Organic sales growth improved to 8 percent in the fourth quarter from 6 percent in the third quarter.

“It’s reassuring for the sector to see organic growth picked up a bit,” Rahul Sharma, founder and managing director of Neev Capital in London, said by phone. “Every division other than fashion & leather goods has done well.”

Growth in fourth-quarter organic sales was led by a 13 percent increase at the selective-retailing unit, which includes DFS duty-free stores and the Sephora cosmetics chain.

The wine & spirits and perfume & cosmetics divisions both showed 9 percent increases, the company said, beating a 6 percent gain at the watches & jewelry unit.

The U.S. was the best performing region in the quarter, boosting organic sales 11 percent. That exceeded gains of 8 percent in Asia, 5 percent in Europe and 3 percent in Japan.

The luxury-goods maker expects continued growth this year.

“Despite an uncertain economic environment in Europe, LVMH is well-equipped to continue its growth momentum across all business groups in 2013,” the company said. “The group will maintain a strategy focused on developing its brands by continuing to build up its savoir-faire, as well as through strong innovation and expansion in fast growing markets.”

Full-year sales climbed 19 percent to 28.1 billion euros, or 9 percent excluding acquisitions and currency shifts.

The company said it plans to raise its dividend 12 percent to 2.9 euros a share.

Download: Earnings

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