Big spenders still splashing the cash

The world economy may be fragile, but those with wealth are certainly flaunting it.

Consultancy Bain & Co forecasts that global expenditure on pure luxury items will grow by 8% this year but judging by some recent company results, that prediction may turn out to be on the low side.

The world’s largest producer of luxury goods, LVMH, has reported that net profit jumped by 25% to €1.31 billion in the first six months of this year compared with the same period in 2010. That was some €500m in excess of what Paris analysts were expecting.

Profits from recurring operations in the duty free arm, which includes DFS and beauty retailer Sephora, were a massive 63% up.

Demand from the Far East soared with sales 26% up, while in the US they were 17% ahead. If any proof were needed that people will still pay out for designer products, this is it.

Organic sales in wines and spirits at Moët Hennessy, LVMH’s drinks unit, rose by 13% but the division’s profit from recurring operations jumped by 27%, reflecting a stronger product mix and consumers continuing to trade up.

The company reported a “notable rise” in demand for prestige cuvée Champagnes, especially Dom Pérignon and Krug, but as usual did not break down the figures. Glenmorangie and Belvedere are also reported to have done well.

Those results echoed figures for the April to June quarter from Rémy Cointreau, which enjoyed organic growth of 22.5% over the course of 2010.

Cognac sales were 31.8% up on the back of extra volumes and increased margins. Liqueurs and spirits, including Cointreau and Mount Gay rum, achieved organic growth of just under 8%, held back in part by the floundering fortunes of Metaxa in Greece.

Results, of course, are backward looking and do not necessarily mirror the current economic mood, but both LVMH and Rémy Cointreau say they are confident about the rest of this year.

While Remy is intent on capturing further growth from its existing range, LVMH is also looking at further innovation in its bid to add profits.

Now valued at more than €65bn, LVMH is also on the acquisition trail. It is likely to buy the outstanding 24% of the shares it does not already hold in the Italian jeweler Bulgari at the end of August and has raised its stake in Hermès to 21.4%.

Analysts all expect an eventual bid for the perfume and fashion house, but it will have to be hostile.

When both Diageo and Pernod Ricard report their full-year figures at the end of August, investors will use both LVMH and Rémy as yardsticks to measure progress.

True, they are not identical businesses, but evidence of increased premiumisation and margin growth will be expected.

No doubt questions will also be asked about acquisition strategies, not least whether Diageo is any closer to its dream purchase of the 66% of the Moët Hennessy shares it does not yet own.