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Fashion’s Latest Diet: LVMH Sheds 2 Brands, Other Sales in Pipeline

PARIS — It looks like thin is in for 2003 at LVMH Moët Hennessy Louis Vuitton.WWD has learned that the luxury giant sold the upstart...

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PARIS — It looks like thin is in for 2003 at LVMH Moët Hennessy Louis Vuitton.

WWD has learned that the luxury giant sold the upstart beauty companies Hard Candy and Urban Decay last month to the U.S.-based Falic family for an undisclosed sum. And those might not be the last of LVMH’s 50 brands to go. Chief financial officer Patrick Houel said on a conference call Thursday, during which the group discussed its 2002 sales results, that more transactions are on the way.

LVMH upped its operating profit growth targets to at least 25 percent for 2002 while reporting a sales increase last year of 3.8 percent to $13.58 billion.

"I think we will continue selling some businesses, small companies, real estate and shares in companies," Houel said, responding to questions from analysts. "We will concentrate on our core businesses."

Pressed for further precision, Houel said, "I will not give you the names of companies we are going to sell."

However, sources suggest possibilities range from Thomas Pink and Loewe to Sephora, Guerlain or even Givenchy. Potential buyers for fashion and leather goods businesses are said to include the upstart luxury conglomerates Equinox and France Luxury Group, Texas Pacific Group, the investment fund Opera or other venture capital funds. As for potential beauty brand buyers, possibilities range from L’Oréal to Wella, while for Sephora, suitors could range from the German group Douglas to French department store chain Galeries Lafayette.

Sources suggested all options are being considered, and it’s possible some brands could be bundled and sold as a package deal. LVMH sold its Pommery champagne brand and money-losing auction business Phillips last year, and had been under pressure to sell its money-losing selective distribution division, which last year saw sales dip five percent to $3.57 billion. Dollar figures are converted from the euro at current exchange rates.

LVMH chief Bernard Arnault has described selective retail as "noncore" and analysts believe that may still be the case. "I think Sephora could be sold this year," said Antoine Colonna, luxury analyst at Merrill Lynch in Paris. "I would expect the company will clarify in March at its shareholders’ meeting what it sees as core and noncore."
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Jacques-Franck Dossin, luxury analyst at Goldman Sachs in London, said in a research note Thursday that LVMH’s intensifying focus on star brands like Louis Vuitton and Fendi suggest the sale of "small but loss-making brands" might be in the offing.

During the conference call, an LVMH spokesman singled out Marc Jacobs and the men’s shoe firm Berluti as having double-digit sales increases last year. He also noted that Fendi is "making strides," Donna Karan is showing "good resilience," while Céline posted a "good performance," boosted by strong sales of its "Boogie" handbag.

The spokesman also mentioned the standing ovation and rave reviews that greeted Christian Lacroix’s couture show Tuesday, and mentioned Lacroix’s overhaul of the house of Pucci. LVMH fashion and leather goods brands that weren’t mentioned include Loewe, Givenchy and Thomas Pink.

Meanwhile, Patrick Choël, president of the perfumes and cosmetics division at LVMH, described the sale of Hard Candy and Urban Decay as a "small disposal. They were the two smallest businesses in my portfolio," which includes such big hitters as Parfums Christian Dior, Parfums Kenzo and Guerlain, plus numerous small-sized players like Bliss, BeneFit Cosmetics, Fresh and Make Up For Ever.

Wende Zomnir, executive creative director of Urban Decay, seemed upbeat about the new ownership by the Falic Group, composed of Leon, Simon and Jerome Falic. "They love the business," she said. "They want to maintain the prestige positioning the brands have and even take them up a notch. All they have said to me is, ‘We want more creativity from you, more product.’"

Urban Decay and its sister brand, Hard Candy, already have some duty-free distribution. The brands now are also sold in Sephora, Nordstrom and select doors of Bloomingdale’s, Foley’s and Macy’s East.

Industry sources estimate the brands could have been sold in a deal worth less than $10 million. Urban Decay and Hard Candy, sources said, are at best marginally profitable although estimates of their sales vary widely, from $20 million to $40 million at retail.

The two brands were cherry-picked by LVMH within 10 months of each other between 1999 and 2000. It was a time when LVMH was on an acquisition spree, snapping up trendy and wild beauty brands. Urban Decay fit the bill with its defiant attitude and products to match, including nail polishes named Roach, Pigeon and Asphyxia. Hard Candy was equally rebellious, with items like Trailer Trash nail polish. Its founder, Dineh Mohajer, started concocted nail polishes in her bathroom.
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Dossin has been an advocate of restructuring at LVMH. "We believe that current EPS could be boosted by potentially close to 20 percent on a full-year basis, through more restructuring measures," he wrote in a report earlier this week. "This does not include the potential sale of either DFS or Sephora, despite LVMH highlighting earlier this year that these assets are no longer considered strategic. It assumes measures such as further lease negotiations at DFS, closure of flagships at Sephora US, selling some more marginal brands in the cosmetics, fashion and selective retail divisions and continuing to reduce the Treasury shares and financial positions. We therefore believe that the restructuring story still has significant potential."

Terrorism, war in Iraq and a protracted economic crisis in the U.S. are considered among the key risks for the luxury sector. But LVMH said Thursday its objective for 2003 is to deliver "tangible" increases in operating profits despite a challenging outlook.

Although the holiday season was poor for many luxury players, LVMH said fourth-quarter sales advanced 8 percent to $4.11 billion. Fashion and leather goods was the strongest division, with sales up 22 percent based on constant exchange and a stellar performance by the Louis Vuitton brand.

As reported, Vuitton sales were aided by the introduction of new products such as watches, new flagships in Tokyo and Kobe and lusty demand in the U.S., France and Japan over Christmas.

Sales in the perfumes and cosmetics division advanced 5 percent to $2.5 billion. In a release, LVMH credited the launches of Dior Addict and Givenchy Pour Homme for the gains. It also noted that two of its indie brands, BeneFit and Fresh, "continued to grow very satisfactorily."

For retail, LVMH characterized the DFS business as moving "in line with the progressive recovery in global tourism. Sales have started to grow since September, but have not yet returned to the levels of 2000. DFS is continuing to implement its restructuring initiatives and optimize performance." At Sephora, sales grew 9 percent last year, with U.S. comp-store sales up 25 percent.

The watches and jewelry division saw sales inch up 1 percent to $591 million. The firm noted that the cancellation of third-party manufacturing agreements dented the strong growth of sales of Christian Dior watches, notably its "Riva Sparkling" styles, and the TAG Heuer brand.
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Sales of wines and spirits rose 2 percent to $2.43 billion, with LVMH highlighting particular strength in the U.S., U.K. and Japan.

Claire Kent, the Morgan Stanley luxury analyst who is a target in the $100 million bias suit lodged in commercial court here by LVMH, plans to release her comments on the LVMH numbers today.

French companies report sales and earnings separately. LVMH is slated to reveal full details at a shareholders’ meeting here March 6. LVMH shares went up 2.7 percent to close Thursday at $39.27 on the Paris Bourse.

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