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Luxury Shares Fly High On Sunny Outlook for ’04, But Gray Clouds Loom

Luxury firms are enjoying their best times in years, and the fervor is being reflected in share prices flying high, which, experts say, should continue.

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A Bulgari watch.

Photo By WWD Staff

Hermès fashion, spring 2004.

Photo By WWD Staff

Tiffany's Legacy ring.

Photo By WWD Staff

NEW YORK — Enjoy the good times while you can.

With luxury retailers and vendors seeing their best growth in years, investors have celebrated the sector, driving up share prices to new highs. But will Wall Street — and the consumers gobbling up the pricy goods — sober up?

Eventually, experts say. For now, though, the industry can expect to see robust spending at the high end through 2004, which should be good news for luxury shares.

“I’m optimistic for 2004,” Francesco Trapani, chief executive of Bulgari, said in January. “If nothing else happens, such as a widespread epidemic, a large terrorist attack or a war, meaning that things stay as they are now, then I think the top-line growth of 8 to 10 percent that the financial community is expecting is reasonable.”

The dark cloud hovering on the horizon is probably at least a year off. Some industry leaders — such as Bernard Arnault of LVMH Moët Hennessy Louis Vuitton — feel the luxury sector could be susceptible next year to another U.S.-led invasion or a SARS-like outbreak.

“For this year, I am very optimistic the economy is going to grow at a high pace, pushed by the strength of the U.S. economy and also pushed by the strength of the Far East, but the question is what will happen next year,” Arnault told WWD early last month. “The main problem for luxury companies, most of which are based in Europe, is the strength of the euro. The strongest ones, like Vuitton or Hermès, may adjust prices to cope with the weakness of the dollar, but the rest of them are really having a problem.”

The dollar is scaring everyone. “Currency exchange rates are an important variable in 2004,” said Dana Telsey, equity analyst at Bear Stearns, in a just-released report on the luxury goods sector.

Telsey said last year the industry experienced a strong euro that negatively impacted top-line growth for European-based companies, despite price hedging. “Although currency exposure is often hedged at the operating profit level, we believe the protection achieved in 2003 could be harder to cycle in 2004,” Telsey said.
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