By  on January 25, 2008

PARIS — France's PPR, the retailer that owns Gucci Group, on Thursday posted better-than-expected fourth-quarter sales and suggested it could weather a U.S. slowdown.

PPR's sales in the three months through December gained 15.1 percent to 5.88 billion euros, or $8.51 billion at average exchange, propelled by Gucci as the Italian brand experienced double-digit growth across all its major categories.

"PPR's excellent figures speak for themselves," said François-Henri Pinault, the group's chairman and chief executive officer. "They illustrate the strength of the group's strategic business model and its capacity to resist economic vagaries."

Investors applauded the numbers and drove PPR's stock up over 12 percent to 95.45 euros, or $139.17 at current exchange, in trading on the Paris Bourse. Investors were equally pleased with the deal PPR reached Tuesday to dispose of its YSL Beauté business to L'Oréal for 1.15 billion euros, or about $1.68 billion.

"The price [L'Oréal paid] was high, given that PPR will retain ownership of the YSL brand, which will be licensed to L'Oréal," said HSBC analyst Antoine Belge in a note to investors.

Luxury continued to eclipse retail for PPR, suggesting the high-end might prove more resilient to an economic crunch. Jean-François Palus, PPR's chief financial officer, told a conference call that Gucci logged an excellent December with no sign of slowdown or trading down among clients. "[PPR] can resist the ups and downs," he said. "We see no reason why we should be effected. We can weather most storms."

Adverse currency exchange rates, with the euro soaring against the dollar and the yen, deflated PPR's otherwise stellar numbers, suggesting substantial profit growth might be difficult for European luxury firms to achieve. Palus said a shorter merchandising calendar also hit luxury numbers. PPR is scheduled to report 2007 profits on Feb. 27.

Disadvantageous exchange rates shaved off almost 10 percent from the luxury division's sales. Overall luxury sales gained 5.2 percent to 1.09 billion euros, or $1.58 billion at average exchange. That compares with a 14.2 percent gain on a comparable basis.

Gucci's sales gained 2 percent to 618.8 million euros, or $894.7 million, in the quarter. On a comparable basis, they surged 14.2 percent, led by 21.1 percent growth in Asia, excluding Japan.In currency-sensitive North America, the brand's sales edged ahead 1 percent. Before the impact of currency and calendar, they gained almost 18 percent. Currency issues in Japan resulted in a 5.8 percent dive in Gucci's sales on the island nation instead of growth of 2.2 percent on a comparable basis the brand achieved.

PPR said Gucci performed exceptionally well in emerging markets, where sales in the quarter gained 39 percent. Fourth-quarter sales growth in China, for instance, was 130 percent, while South Korean sales gained 26 percent.

Palus said Gucci's leather goods grew 12.5 percent thanks to new models like the Abbey and continued success of the Indy.

Bottega Veneta continued its upward thrust, with the brand posting fourth-quarter sales growth of 29.4 percent to 104.6 million euros, or $151.5 million. That was close to double the sales at the money-losing Yves Saint Laurent brand, where sales gained 5.9 percent to 59.2 million euros, or $85.7 million, thanks to strong sales of cruise collections. Before the impact of currency, YSL sales gained 20 percent.

Sales at YSL Beauté eked out growth of 0.6 percent to 195.3 million euros, or $282.9 million, while the so-called other brands — Boucheron, Sergio Rossi, Balenciaga, Alexander McQueen and Stella McCartney — saw sales grow 13.4 percent to 114 million euros, or $165.1 million.

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