PARIS — Dragged down by its own reorganization, as well as an “air pocket” that created retail turbulence, Pinault-Printemps-Redoute on Thursday reported a 58.2 percent drop in first-half net income.
The French retail and luxury conglomerate, which controls Italy’s Gucci Group, attributed the drop largely to the strategic realignment that has seen it exit most of its noncore activities.
PPR said net income, slightly below analysts’ expectations, declined to $127.8 million from $305.6 million a year ago. Dollar figures have been converted from the euro at current exchange, as PPR reported earnings of 118.3 million euros versus 283 million euros in the first six months of last year.
Earnings before interest and taxes fell 30.4 percent to $627.5 million, or 581 million euros, from $900.9 million, or 834.2 million euros, last year. On a pro forma basis, eliminating noncomparable operations, EBIT dropped 9.2 percent to $548.6 million, or 508 million euros, from $604.3 million, or 559.5 million euros, last year.
As reported, PPR’s first-half sales fell 7.8 percent to $13.25 billion, or 12.27 billion euros, from $14.37 billion, or 13.31 billion euros, a year ago.
Meanwhile, in a meeting with investors and reporters, PPR chief executive Serge Weinberg called the first half “an air pocket” that caused turbulence, but is now showing signs of smoothing out.
Weinberg reported PPR retail sales in France had advanced 2.9 percent on a comparable-store basis during July and August.
Analysts said they welcomed news from Gucci earlier this week that sales in the United States and Japan had increased by double digits in July and August, as reported.
“We’re happy with the retail numbers,” said Elisabeth Jamieson, the director of European retail research at Lehman Brothers in London.
“The first half was bad,” said Weinberg, “but we are at the beginning of a recovery.” Weinberg, however, remained cautious and did not provide projections for the second half.
Weinberg said PPR had accomplished the large part of its strategic shift. Over the last year, the company, controlled by French billionaire François Pinault, has sold almost all of its business-to-business holdings to focus on higher-margin retail and luxury, including Gucci, the Printemps department store chain and the Fnac music and book chain.Within the so-called “new PPR,” or the retail and luxury division, sales in the first six months increased 4.1 percent to $8.29 billion, or 7.68 billion euros. EBIT declined 6.9 percent to $424.4 million, or 393 million euros.
In the division, Gucci Group accounted for 17 percent of sales and 30 percent of profits.
Turning to the ongoing contract renewal negotiations between PPR and Gucci’s key executives, ceo Domenico De Sole and creative director Tom Ford, Weinberg dismissed as “groundless” a report making the rounds in Paris that had De Sole and Ford set to depart Gucci and start a new fashion venture. “When there is news to relay, it will be communicated,” he said.
Asked about the negotiations earlier this week, De Sole told WWD there were no new developments to report.
PPR spent $916.6 million, or 848.7 million euros, in the first six months acquiring Gucci stock. As reported, the firm now controls 66.65 percent of the Italian giant and is expected to hold 70 percent of Gucci by the end of the year. In 2004, PPR has a put obligation to buy all the Gucci stock it doesn’t own at $101.50 a share. That amount will be reduced nearly $15 a share by a special payment being made to PPR shareholders by Gucci.
Through the first half, PPR’s net debt stood at $5.95 billion, or 5.51 billion euros, slightly higher than at the end of last year.
Looking ahead, Weinberg said PPR would “continue to develop its positions and maintain our rhythm of store openings…while observing strict financial discipline.”
Eighteen stores are scheduled to open by yearend, including four Conforama furniture outlets and five Fnac locations. Weinberg said $486 million, or 450 million euros, would be invested over the next three years to open new stores.
PPR shares closed down 3.8 percent to $86.94, or 80.50 euros, in trading on the Paris Bourse.
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