Arnault on the Attack: Blasts Gucci’s Strategy As LVMH Net Leaps 49%

While reporting that first-half net profits at LVMH soared 49 percent, chairman Bernard Arnault said he doesn’t regret losing Gucci to PPR.

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But his tone was upbeat, and he sought to distance LVMH from its competitors and general trends in the luxury sector.

“The second half is looking very good for the group as a whole,” he said. “The world is being driven by economic growth, even if we are not feeling it so much in Europe.”

Furthermore, he boasted: “There are major differences from one company to another and LVMH is hardly comparable because, in terms of profitability, it does much better than its competitors year upon year.”

Unfavorable currency exchange shaved 170 million euros, or $208.6 million, from first-half profits, hitting its core fashion and leather goods division hardest. Operating income in those businesses stood flat at 634 million euros, or $777.9 million, which disappointed some analysts, even if the overall results were above consensus.

Arnault acknowledged that continued investments in Fendi and Donna Karan affected the results. He declined to give specifics, but noted, “Rest assured, we are not losing 50 percent of the turnover.”

Pressed for more information about those brands during a question-and-answer period, he offered only: “The figures will be improving as of 2005.”

The “G” word came up while Arnault was trumpeting a dramatic turnaround in fortunes at DFS, driven by a sharp rebound in Asian tourism. That helped operating profits in its selective retail division zoom to 76 million euros, or $93.3 million at average exchange rates, in the six months ended June 30, versus a loss of 15 million euros, or $16.6 million, a year ago.

Arnault said the results suggest the 1996 investment in DFS — purchased for a fraction of the selling price of Gucci —was a sound one, as the duty-free retailer should soon throw off as much profit as Gucci.

Still, Arnault, who has described DFS as “noncore” in the past, stopped short of saying a disposal of the retailer was imminent. “We will wait for the performance to improve greatly before exchanging diamonds for our gold,” he quipped with a sly grin.

The company also highlighted fast growth at Celine, Pucci, Berluti and Marc Jacobs, and said the negative currency impact would be lower in the second half.
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