* Fashion and leather lfl Q4 sales 7 pct vs 3 pct in Q3
* Wines and spirits lfl Q4 sales 4 pct vs 9 pct in Q3
* LVMH says sees Q1 cognac sales to final customers up in China
By Astrid Wendlandt
PARIS, Jan 30 (Reuters) - LVMH, the world's No.1 luxury group, enjoyed a step-up in demand for its flagship Louis Vuitton brand and other fashion labels in the fourth quarter and predicted cognac sales in China would improve in the current quarter to March.
Sales growth at LVMH's fashion and leather good unit, its biggest business, accelerated to 7 percent in the quarter to Dec. 31 from 3 percent in the previous three months, beating analysts' growth expectations of 4-5 percent.
"Results were in line, but the sequential pick-up at Louis Vuitton and the positive trend in cognac (expected in the first quarter) should be well received by the market," said Antoine Belge, a luxury goods analyst at HSBC.
The owner of Hennessy cognac and fashion brand Dior said the profitability of Louis Vuitton, the group's main cash cow, remained unchanged in 2013 and its upmarket repositioning progressed, but it admitted to production constraints.
"We have waiting lists that are getting longer," Chief Executive Bernard Arnault said on Thursday at the group's annual results presentation at its Paris headquarters, referring to Louis Vuitton, the No.1 luxury brand which generates more than 7 billion euros in annual sales.
When LVMH published its mid-year figures in July, there was concern about Louis Vuitton losing momentum after having enjoyed stellar growth for years.
Those worries continued to weigh on the group, leading its shares to be among the worst performers in the European luxury goods sector in 2013. Last year, LVMH shares lost 4.5 percent, while this month they are down 7.6 percent.
"Fashion and leather and Louis Vuitton growth accelerated which bodes well, but this did not result in margin expansion," noted Bernstein luxury goods analyst Mario Ortelli.
LVMH's improving fortunes contrasted with that of Italian rival Tod's which published disappointing fourth-quarter figures on Wednesday, helping cement the view that major luxury brands such as Louis Vuitton and Kering's Gucci were suffering from logo fatigue.
LVMH Finance Director Jean-Jacques Guiony estimated Louis Vuitton sales to Chinese consumers last year, both at home and abroad, rose 5 percent, well below the 10-20 percent growth rates the brand enjoyed in the country in previous years.
As Louis Vuitton put brakes on worldwide expansion, the numbers published for the brand are close to what its same-store sales growth would be, as they were previously boosted by shop openings, analysts say. LVMH does not publish same-store sales for any of its brands.
Recurring profit from LVMH's fashion and leather unit fell 4 percent to 3.14 billion euros in 2013, a drop the group blamed on investments in the retail networks and image of brands such as Fendi and Berluti.
Asked about LVMH's acquisition strategy going forward, Arnault said the group was open to strategic opportunities but was not studying any target at the moment.
LVMH said it expected sales to end-customers in China to be "positive" in the first quarter after having joined the ranks of rivals Diageo Pernod Ricard and Remy Cointreau which suffered from lower demand for premium spirits in China.
Sales growth at the group's wines and spirits unit fell to 4 percent from 9 percent between the third and fourth quarter.
"Consumption of luxury goods has slowed down in China, particularly in wines and spirits and the sales of cognac have been affected," Arnault said, admitting that cognac stocks in China had been too high compared to the end-demand.
LVMH's overall sales figures benefited from strong growth at its duty-free and Sephora cosmetics retail chain as organic sales rose 17 percent in 2013.
Arnault said Sephora was on its way to becoming the biggest distributor of perfume and cosmetics in the United States where sales had been rising in "double digit" terms.
The group said it had 150 Sephora shops in China and was opening about 30 shops a year in that country, where it added Sephora was profitable.
LVMH's annual sales reached 29.15 billion euros in 2013, roughly in line with forecasts, while profit from recurring operations rose 2 percent to 6.02 billion, compared with a 13 percent rise the previous year. The group's operating margin slipped to 20.7 percent from 21.1 percent in 2012.