LVMH warns of profit fall: Champagne sales lose their bubbles
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Your support makes all the difference.THE EXTENT to which the recession has harmed sales of luxury goods was evident yesterday, as Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton, warned investors to expect a fall in this year's first-half profits at the French drinks, luggage and perfumes group.
His announcement follows last week's profits warning from Dunhill, the British luxury goods maker which produces Montblanc pens and Lagerfeld clothes.
LVMH owns a string of high prestige brand names including Hennessy Cognac, Louis Vuitton luggage and Moet champagne.
Mr Arnault told shareholders at the Paris LVMH annual meeting that the profit warning stemmed from the economic situation in the group's main markets and the reduced profitability of champagne.
'The profitability of champagne will be sharply lower than that of last year, the champagne having been made with grapes bought at a high price in 1990,' said Mr Arnault.
LVMH is one of the biggest players in the champagne market, and it has been hard hit as the fizz has gone out of sales in Western Europe.
Shares in Guinness, which has a 24 per cent cross-shareholding in LVMH, fell 5p to 473p on the news but later recovered to 479p, as analysts digested some of the more bullish parts of the statement, particularly that the French company hoped that profit for the whole of 1993 would
be equal to that of 1992.
Two weeks ago, the Guinness chairman, Anthony Greener gave a similar profits warning to his own shareholders, saying that the British company expected a fall in first-half profits but hoped to make profit for the whole of 1993 which would be equal to 1992.
The global market for luxury goods epitomised by LVMH flourished during the 1980s, but has suffered as recession has spread throughout the main high-spending markets in the US and Japan.
Instability in the Japanese economy has hit LVMH sales of luggage and cognac. Sales have also been affected by changing consumer attitudes in Europe.
Yesterday morning LVMH shares were down Fr55 at Fr3,655 ( pounds 452) on volume of 8,220 shares, after hitting a low at Fr3,610 immediately after the announcement.
The drop in first-half profits at LVMH was aggravated by the devaluation of sterling, which hit Guinness's contribution to the company's earnings.
LVMH made net attributable profit of Fr1.3bn ( pounds 161m) in the first half of 1992, and Fr3bn for the full year.
Mr Arnault said that sales for the five months to May were up 4.5 per cent from a year earlier.
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