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PPR Sales Up 8 Percent in Third Quarter

Strong demand for luxury goods outpaces sluggish retail banners.

Francois-Henri Pinault

PARIS — In further evidence that the luxury sector is defying economic gloom, French retail-to-luxury group PPR said revenues rose 8 percent in the third quarter, boosted by strong appetite for designer goods in both emerging and mature markets.

This story first appeared in the October 27, 2011 issue of WWD.  Subscribe Today.

PPR — whose assets range from luxury brand Gucci to mail-order division Redcats — reaffirmed its full-year target of beating 2010 results after posting revenue of 3.86 billion euros, or $5.46 billion, in the three months to Sept. 30, versus 3.57 billion euros, or $4.60 billion, in the same period a year earlier, up 7 percent on a comparable basis.

Dollar figures are converted at average exchange rates for the periods to which they refer.

PPR’s luxury division — which includes Gucci, Balenciaga and Alexander McQueen — posted revenues of 1.28 billion euros, or $1.81 billion, in the third quarter compared with 1.04 billion euros, or $1.34 billion, in the year-ago quarter — up 23.1 percent.

The sales data came on the heels of figures showing sales at LVMH Moët Hennessy Louis Vuitton rose 17.6 percent in the third quarter, while Burberry revenues were up 21 percent in its fiscal second quarter, ended Sept. 30.

“PPR put in another sparkling performance this quarter, with all product categories and sales channels within the luxury goods and sport & lifestyle businesses contributing to growth,” PPR chairman and chief executive officer François-Henri Pinault stated.

“While we remain vigilant, we are confident in the strength of our brands and the significant long-term potential of their markets. Over the full year, PPR has the ability to deliver sustained revenue growth and achieve higher financial performances than in 2010,” he added.

Sporting goods firm Puma separately reported a 7.3 percent rise in sales on Tuesday. Combined sales for the luxury and sport & lifestyle divisions were up 18 percent during the period on a comparable basis, said PPR, which did not provide a percentage increase in reported terms for this particular figure.

“The financial turmoil the world has been experiencing since this summer did not have any visible impact on either our luxury or our sport and lifestyle brands in the quarter,” deputy ceo and chief financial officer Jean-François Palus told analysts in a conference call.

Within this combined segment, sales in Asia Pacific grew 29 percent. Western Europe and North America also provided strong showings with increases of 16 percent each. “Mature markets still account for well above half of our revenues,” Palus pointed out.

Meanwhile, sales in Japan grew 7 percent in the third quarter as customer traffic and average spending rebounded in the wake of the March catastrophe.

PPR’s retail banners, which it plans to shed as soon as market conditions permit, again lagged its other activities. Sales at Fnac fell 4 percent in the quarter to 960 million euros, or $1.36 billion, even as the company began to roll out its “Fnac 2015” strategic turnaround plan.

Redcats, which sells a range of apparel and household items via catalog and the Internet, posted a 7.6 percent fall in revenues to 695 million euros, or $984 million, reflecting depressed consumer sentiment in its key markets and exceptional circumstances, including the early start of the French summer sales.

 

PPR announced in September it was postponing the planned sale of Redcats due to adverse market conditions. “We are pursuing our discussions with a few potential investors that are very interested in this asset, and so we are on our way, like we said, to continue this process,” said Palus.

 

He also announced that PPR would “discontinue” its U.S. plus-size clothing retailer Avenue in the next few months, but declined to provide further details. “We may contemplate different solutions that all will lead to discontinuing Avenue and you will know when we have finished,” he said.

Dawn Robertson, ceo of Avenue, subsequently clarified the division was also on the block. “PPR is in the process of looking for a new owner for Avenue. The company is not closing. U.S. operations and Redcats will focus more on online sales,” she said.

 

The third-quarter results for the first time integrated figures for PPR’s recent acquisitions, California action sports brand Volcom Inc. and Sowind, parent of the luxury timepiece manufacturers Girard-Perregaux and Jean Richard. Both posted “highly satisfactory” performances during the period, Palus said.

Among the group’s luxury brands, Gucci registered sales of 788 million euros, or $1.11 billion, up 17.6 percent, helped by the continued upgrading of its product offer towards more logo-free and higher-priced merchandise, as it celebrates its 90th anniversary with a series of high-profile events.

North America, where Gucci recently bought back 17 shop-in-shops from department store operator Saks Fifth Avenue, led the pack with a 31 percent sales increase, reflecting increased store traffic and tourist flows. However, China remained by far the brand’s most important market.

“For the Gucci brand, we estimate that customers from mainland China represent one third of total sales and of course it was only 30 percent, roughly, last year, so it’s increasing,” Palus noted.

Sales at Bottega Veneta rose 35.4 percent to 185 million euros, or $262 million, with “very promising” results for the brand’s first fragrance in the month after it launched, he added.

Yves Saint Laurent posted sales of 98 million euros, or $139 million, with regional increases of more than 40 percent in Asia Pacific, North America and Western Europe.

“Yves Saint Laurent executed flawlessly, both in the new stores opened in emerging markets over the past quarters and in its more established bastions in mature countries,” said Palus, noting that sales of shoes soared 70 percent in the quarter as customers snapped up YSL’s hugely popular Tribute and Trib Too styles.

The executive said momentum remained “very solid” for all the group’s brands, with good early orders for spring-summer collections, in particular women’s ready-to-wear. Bottega Veneta, in particular, was posting “outstanding” figures in that segment, he said.

“In the shorter term, like most industry observers, we believe that luxury consumers will remain active during the upcoming holiday season, in 2012 and beyond,” said Palus.

“But we are also working very hard throughout the group to grow faster than our markets and to be in a position to respond rapidly to any opportunity or headwind,” he added, noting PPR would open 19 stores in Greater China in the fourth quarter, versus 6 in the third quarter.

The results were published after the market closed on Wednesday.

At 11 a.m. CET, PPR shares were trading up 6.2 percent at 117.30 euros, or $163.11 at current exchange, on the Paris stock exchange.