LVMH’s Net Income for Year Soars 73%

Less than two years after the worst financial crisis since the Great Depression, indulgence is back in style. Bernard Arnault, creator of LVMH Louis Vuitton Moët Hennessy, is one of the biggest beneficiaries. Consumers sipped Dom Pérignon Champagne, donned Hublot watches and sported Louis Vuitton handbags in record numbers last year, especially in Asia, driving sales at LVMH, the world’s largest luxury goods company, to new heights and sharply lifting profitability. At a news conference on Friday, Mr. Arnault said sales in 2010 rose 19 percent to 20.3 billion euros ($28 billion). Operating profit jumped 29 percent to 4.32 billion euros ($5.9 billion), while net income surged 73 percent to 3 billion euros ($4.1 billion). The group increased its 2010 net dividend to 2.10 euros ($2.89) from 1.65 euros ($2.27). Revenue from fashion and leather goods surged about 20 percent, matching sales from wines and spirits and from retail outlets like Sephora and Duty Free Stores. Watches and jewelry are the company’s least profitable products, though sales of high-end watches skyrocketed last year, a trend that LVMH expects to continue. Demand from the newly affluent, especially in Asia, is driving much of the rebound in the luxury industry after overall sales slumped around 8 percent in 2009, according to research by Bain & Company. As China transforms itself into an economic juggernaut, Chinese shoppers are spending as never before on luxury goods. Sales of expensive trinkets are jumping on the Chinese mainland and in nearby regions like Macao and Taiwan, as well as overseas, where Chinese tourists crowd exclusive boutiques from the Champs-Élysées to Fifth Avenue. Like almost every producer of luxury goods these days, LVMH is betting on even greater growth in China, particularly as the Japanese economy remains in a holding pattern. The company has positioned itself over the years by turning a constellation of names, including Dior, Fendi and Marc Jacobs, into top sellers by cultivating their development and tailoring sales strategies to a range of pocketbooks. While a Guerlain perfume can be found in any duty-free shop, for example, a Louis Vuitton bag can be purchased only at one of the brand’s boutiques, imbuing it with what Mr. Arnault described as an “extraordinarily elitist” quality that makes it a must-have item among the rising ranks of the wealthy. Still missing from the company’s offerings, though, are goods from the fashion house Hermès, in which Mr. Arnault took a stealthy 20 percent stake last year, largely through the use of derivatives. On Friday, Mr. Arnault responded to a barrage of questions about his intentions by declaring that LVMH was “surprised” to find itself a large shareholder in Hermès, a position that he said had been “imposed” on LVMH because of conditions underlying the derivatives contracts. Since the stake was revealed, the Hermès family has reacted bitterly and called on Mr. Arnault to sell, which he said he was not inclined to do. He repeatedly pledged that LVMH would remain a “peaceful” investor in Hermès but said he would nonetheless press to collaborate with the family. On Thursday, Hermès, whose $10,000 Kelly bags and other top-quality leather goods make it an immensely profitable company, said it would pay an interim dividend of 1 euro ($1.37) a share for the first time, after posting a 25.4 percent increase in annual revenue. The family’s 72 shareholders, together with Mr. Arnault, will get almost all of that payout.