By  on January 27, 2006

PARIS — Luxury boomed; retail lagged.

That was the news from PPR, owner of Gucci Group, as the French conglomerate said fourth-quarter sales improved 3.9 percent to 5.46 billion euros, or $6.49 billion, driven by "record" sales at Gucci and "exceptional" growth at Bottega Veneta, but weighed down by a weaker-than-expected retail performance.

"Our luxury goods brands had a truly outstanding year," said François-Henri Pinault, PPR chairman and chief executive. "Gucci generated record sales in the year. The momentum in luxury has continued in the first weeks of January."

Overall luxury sales surged 16.3 percent to 900.7 million euros, or $1.07 billion, in the three months ended Dec. 31, underscoring the sector's continued roll after robust sales reported last week from PPR's French rival LVMH Moët Hennessy Louis Vuitton. Currency conversions were made at average exchange rates for the respective periods.

Gucci wasn't PPR's only star. Pinault, in a conference call, said "triple-digit" gains at Balenciaga had been such that PPR was "reassessing the potential of Balenciaga and we are going to give it the resources to realize its potential."

Bottega Veneta zoomed ahead, too, with the leather house's sales gaining 74.9 percent to 49.2 million euros, or $58.5 million, surpassing Yves Saint Laurent's quarterly sales (44.3 million euros, or $52.7 million, down 2.4 percent) for the first time.

"We are now confident that [Bottega] is a tier-one brand," said Pinault. "It should reach a considerably higher level of sales in the medium term."

Pinault said jeweler Bouch­eron had "significant" increases in the quarter and 37 percent sales growth for the year, and that Sergio Rossi, the footwear firm, was "turning the corner."

Meanwhile, he lauded "strong" growth at Alexander McQueen and Stella McCartney, which should lead the two British designers to break even by or before PPR's target date of 2007.

Pinault suggested successful news from many of the company's luxury brands would fuel investment. "We are in a position to increase [investment] efforts if necessary to take advantage of the momentum of these brands," he said.

High-margin handbags and shoes sold briskly, said Pinault, with the cash cow Gucci label — which accounts for nearly 60 percent of PPR's luxury revenues — leading the charge.Gucci sales in the quarter rose 14 percent to 539.3 million euros, or $641.5 million, with revenues for the year finishing up 13.6 percent at 1.81 billion euros, or $2.25 billion. In the fourth quarter, sales of Gucci leather goods gained 21 percent, while sales of shoes improved 15.4 percent, Pinault said.

The ceo said Gucci aimed to bolster ready-to-wear sales, underlining that the brand's cruise sales increased 16 percent in December. "We never reached that type of growth in previous seasons," he said. "Frida's new direction is meeting demand." Pinault was referring to Gucci's new creative director, Frida Giannini.

Despite the decline in sales at the money-losing YSL, Pinault found signs of better times, as a new strategy by house president Valerie Hermann starts to bear fruit.

"It's been a year of transition at YSL," said Pinault, adding he had considered this season's cruise collection as a benchmark by which to measure Hermann's strategy.

He said the signs were "encouraging," as sales of accessories and rtw in December had reached "high double-digit" growth.

Nonetheless, Pinault declined to set a timetable for breakeven at YSL, saying only that the goal was to reach annual sales of 300 million euros and to move the business out of the red "as soon as possible."

Pinault said YSL Beauté's sales gained 0.9 percent in the quarter to 192.3 million euros, or $228.7 million, "in a depressed environment for fragrances and beauty products."

Sales for all of the so-called "other" brands — Boucheron, Balenciaga, Sergio Rossi, Alexander McQueen and Stella McCartney — tallied 75.6 million euros, or $89.9 million, in the quarter, increasing 32.9 percent.

Meanwhile, the news was less rosy at PPR's retail operations, which have struggled in a disappointing retail market and had particularly weak sales in France.

Revenues at the retail operations — including the Conforama furniture chain, the FNAC music and book retailer, the Printemps department stores, the Redcats mail-order business and the CFAO African trading arm — tallied 4.58 billion euros, or $5.44 billion, in the quarter, edging ahead 2.9 percent.

But Pinault said he expected the retail landscape to improve "slightly" in the second half.PPR shares finished unchanged Thursday at 94.20 euros, or $115.64 at current exchange, on the Paris Bourse.

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