Posted on: Thursday, January 24, 2002

DFS Hawaii owner says profit down 20 percent

By Mark Deen
Bloomberg News Service

PARIS — LVMH Moet Hennessy Louis Vuitton SA, the majority owner of DFS Hawaii, said 2001 profit fell 20 percent, missing its target because tourists spent less on champagne, fashions and watches in airport duty-free shops during the fourth quarter.

The biggest luxury-goods company, which depends on travelers for at least a quarter of sales, had forecast a 15 percent drop after reducing its outlook for a third time Nov. 12.

Operating profit fell to $1.4 billion, spokesman Olivier Labesse said in an interview.

The French company suffered from a slump in travel sparked by the Sept. 11 attacks on the U.S. after tripling the number of tourist-dependent DFS and Sephora stores between 1997 and 2001.

Finance Director Patrick Houel predicted a "rebound" this year, helped by $100 million in savings and 1,100 job cuts at DFS. DFS Hawaii laid off 70 workers following Sept. 11 and has cut hours of many remaining employees.

"They invested a lot in expansion in the good times, but in a slowdown that hits the bottom line," said Scilla Huang Sun, who manages 70 million euros in luxury-goods-related stocks at Clariden Bank. "We're at the low point for travel retail."

Chairman Bernard Arnault added more than 400 stores in airports and tourist destinations between 1997 and 2001. Now he's cutting back to meet a drop in sales. Most hurt are outlets that cater to Japanese tourists in places such as Hawai'i and Guam.

After the attacks, Japanese tourists canceled about half their planned holidays abroad.

Finance Director Houel said LVMH plans to save an additional $70 million by renegotiating leases for shops in airports. It's also cutting investment in new Sephora cosmetics stores. The company wants Sephora and DFS to be profitable in 2003, he said.

"This year, operating income will rebound even if the environment is still difficult," he said.

LVHM has closed all seven Sephora stores in Japan and all five in Germany since November.

Earnings before interest and tax fell 29 percent to $756 million in the second half, Bloomberg calculations show. Bloomberg calculated second-half profit by subtracting first-half earnings from the full-year report. Full-year sales rose 5 percent.

At the fashion and leather-goods division, fourth-quarter sales rose 5 percent. The business includes Louis Vuitton, the company's most profitable unit.