By  on April 27, 2007

PARIS — Luxury goods lifted first-quarter sales at PPR, the French conglomerate that owns Gucci Group, as the firm's less profitable retail operations continued to post more tepid growth.

Sales in the three months through March 31 advanced 5 percent, to 4.45 billion euros, or $5.88 billion, led by a 10.7 percent gain in sales at the Gucci Group luxury division and beating most analysts' consensus expectations, PPR reported Thursday.

Adverse currency exchange conditions and soft sales in Japan were the main blights on the performance, reflecting similar trends from key luxury players LVMH Moët Hennessy Louis Vuitton and Compagnie Financière Richemont.

Both of those factors weighed significantly on Gucci as the brand's sales advanced 4.4 percent, to 530.5 million euros, or $701.8 million, instead of the 10.2 percent sales would have grown at comparable exchange values. Currency conversions were made at average exchange rates for the period.

Gucci's high-margin leath­er goods category was affected the most by the still weak Japanese market, Jean-François Palus, PPR's chief financial officer, said on a conference call. Overall sales of Gucci leather goods slipped 0.9 percent in the quarter, with Japan presenting the most difficulty. At comparable exchange, leather goods sales gained 5.3 percent.

"Japan is a tough environment," said Palus, adding Gucci was working to turn around its performance in the island nation by trading up assortments, creating products exclusive to the market and pumping more excitement into the shopping experience.

Gucci's ready-to-wear and shoes were more robust and both posted 24 percent gains. Timepieces also showed signs of improvement.

Palus said the reception at the recent Basel fair of the new women's Signoria and men's Pantheon watches was "positive" and that the category posted high single-digit growth in the first quarter.

Outside Japan, Gucci's overall sales grew 10 percent in Europe, 18 percent in North America and 10 percent in Asia, including 85 percent growth in China, reflecting a more propitious luxury market outside Japan.

Gucci opened one store in the quarter, in the Chinese city of Shenzen, bringing its total count to 220 units. Six more stores are planned in the rest of the year, mostly in Asia.

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