LVMH's luxury defies the downturn

The irresistible lure of a new Louis Vuitton handbag helped operating profits at LVMH to climb last year, defying the malaise in the global luxury goods market.

The French fashion house, which last week secured a controversial victory against a London-based analyst accused of biased coverage of its stock, yesterday reported falling sales in 2003 but said operating profits would rise by 7 per cent.

Despite what it described as a "unique achievement", it reiterated that the market for couture fashion and upmarket leather goods was still "challenging", prompting some analysts to downgrade its shares.

LVMH highlighted just how vulnerable global companies are to the impact of the sliding US dollar, revealing that an underlying 4 per cent sales rise in 2003 turned into a 6 per cent decrease. Its reported turnover fell to €11.96bn (£8.24bn) from €12.69bn a year earlier.

The company's flagship Louis Vuitton brand, which celebrates its 150th anniversary this year, was its star performer in the key fourth quarter, with a 17 per cent increase in underlying sales. The brand, whose logoed luggage is a must-have for the jet-set crowd, saw a double-digit rise in underlying sales during 2003: a year beset by such travel traumas as the US-led invasion of Iraq, the outbreak of Sars and a lingering global recession. It recently signed up Jennifer Lopez, the actress-turned-pop star who epitomises the brand's high-flying image, to promote it.

Melanie Flouquet, a luxury goods analyst at JP Morgan, said Louis Vuitton's sales performance - almost double what the market had been expecting - was "mind blowing".

The fashion house, also home to Moet champagne and the Thomas Pink chain of shirtmakers, said growth accelerated in the fourth quarter, rising 8 per cent on an underlying basis. Its fashion and leather business, which includes Kenzo, Christian Lacroix and Donna Karan, saw like-for-like sales soar 12 per cent, with the performance of Fendi, famed for its trend-setting baguette-shaped handbags, singled out as particularly strong.

Morgan Stanley, the US investment bank found guilty by a Paris court last week of issuing biased research coverage of LVMH, yesterday suspended its coverage of the group in what it said was an "unprecedented" move. The bank, which is appealing the court's decision and €30m fine, said its London-based luxury goods analyst, Claire Kent, felt she could no longer express her "honestly held beliefs about LVMH".