By  on September 4, 2007

PARIS — Turmoil in global financial markets has yet to ruffle luxury's fine feathers.

"We haven't noticed any sign of slowdown in any of our businesses," PPR chairman and chief executive officer François-Henri Pinault said Friday in reporting a 54.4 percent leap in first-half net income to 303 million euros, or $402.8 million, from 196 million euros, or $241 million, a year ago. (The figures were bolstered by PPR's acquisition of activewear firm Puma in the second quarter.)

Sounding upbeat as he addressed analysts in Paris, Pinault said sales trends in July and August were in line with PPR's double-digit pace in the first half, when sales rose 11.4 percent to 9.24 billion euros, or $12.28 billion, including Puma revenues. "The end of the year should be good," he said.

Reflecting continued buoyancy at Gucci Group, profits doubled at Bottega Veneta to 37 million euros, or $49.2 million, and Yves Saint Laurent narrowed its losses to 26 million euros, or $34.6 million, from 35 million euros, or $43 million, a year ago. Pinault also flashed a big smile recounting how Boucheron sold a rare gem over the summer priced at more than 10 million euros, or $13.2 million. Currency conversions were made at average exchange rates for the respective periods.

Pinault wasn't the only one downplaying the impact of recent market gyrations. Hermès International, which on Friday reported a 9 percent jump in its first-half profits, also said it expects luxury to sprint ahead for the remainder of 2007.

"For the moment, the financial world seems to have coped well with this crisis in a very short time," Hermès ceo Patrick Thomas said in an interview. "If it doesn't go further than that, it's not going to affect our business."

Echoing PPR's bullish outlook, Thomas cited promising sales momentum over the summer. "We had a very good July and August, slightly ahead of our forecast, which is good news," he said. "The fundamentals are very good."

The two executives were also optimistic about improvements in Japan, which has been plagued with anemic demand for luxury goods, largely because of a loss of purchasing power due to the weak yen.Thomas said Japan, slow since the start of the year, is "catching up now....If Japan comes back, we should have a very good second half."

Pinault said Gucci would meet challenges in Japan by upgrading the quality of its stores and products, particularly entry-level leather goods.

Following are more details on PPR and Hermès results:

PPR

Recurring operating profits at PPR jumped 40 percent to 630 million euros, or $837.6 million, in the first half. Excluding Puma, which contributed 61 million euros, or $81.1 million, the increase stood at 26.5 percent, reflecting sharp profitability increases at Fnac book and electronic stores (22.4 percent), the CFAO African trading company (30.3 percent) and across Gucci Group brands, up 54.9 percent.

The company highlighted continued improvements at Yves Saint Laurent, citing strong momentum in leather goods while noting a 29.5 percent drop in royalty income in the half due to the expiration of a licensing agreement with British men's wear maker Marchpole Holdings plc.

YSL Beauté swung into the black in the half, posting recurring operating income of 21 million euros, or $27.9 million, versus a loss of 5 million euros, or $6.1 million, a year ago. The company credited a leap in manufacturing productivity and a restructuring plan that reduced expenses.

Gucci Group's "other brands," which include Sergio Rossi, Stella McCartney, Alexander McQueen and Bedat & Co., also swung into positive territory, posting 4 million euros, or $5.3 million, in operating profits compared with a loss of 3 million euros, or $3.7 million, a year ago. Pinault said continued momentum at Balenciaga would allow the brand to expand its retail network following an opening last June in Milan. He said "two or three" leases are already signed for new stores, but declined to identify the locations.

Pinault spent much of the meeting trumpeting the group's successful tender offer for Puma, launched in April and concluded in July, leaving PPR with a 62.1 percent stake.

"This acquisition has already had, and will continue to have, a positive impact on our financial statements," he said. Asked if the group planned to increase its stake in Puma, Pinault did not rule out buying additional shares on the market, but characterized it as "not a priority."He added PPR would keep its eyes open for acquisition targets that would complement its portfolio, but stressed, "Organic growth is the best lever for adding value."



HERMES

Hermès reported first-half net income of 128.1 million euros, or $170.3 million, versus 117.5 million euros, or $144.5 million, a year ago. Thomas acknowledged the weak yen and dollar shaved about 12 million euros, or $15.9 million, from the company's bottom line in the period, and 40 million euros, or $53.2 million, from its top line. At constant exchange rates, revenues in the period advanced 8.2 percent to 721.1 million euros, or $958.7 million.

Operating income inched up 0.7 percent to 185.8 million euros, or $247 million, from 184.6 million euros, or $227 million a year ago, reflecting both a 7.2 million euro, or $9.6 million, gain on the sale of Leica Camera AG convertible bonds and significant investments in advertising. Calculated at constant exchange rates, operating income would have advanced 11 percent, and net income by 20 percent.

While analysts lamented the results lacked any positive surprises, Thomas said Hermès is posting strong gains with silk products, along with men's and women's ready-to-wear and fashion accessories, which have already outstripped sales of leather goods in the South Korean market.

In the second half, Hermès plans to open or renovate 12 branches, including an addition of 4,300 square feet of selling space to its sprawling flagship here on the Rue Saint-Honoré, which is slated to reopen on Oct. 23.

Hermès invested 48 million euros, or $63.8 million, in the first half to open stores on Wall Street in New York, and in Seoul; Osaka, Japan, and Hangzhou, China.

Hermès also said Friday it had increased its stake in Vaucher Manufacture Fleurier SA, a Swiss maker of high-end watch movements, but did not indicate by how much. Last year, it bought a 25 percent stake for 25 million Swiss francs, or $20.7 million at current exchange.

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