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Luxury Leads PPR Sales Climb

Firm posted a better-than-expected 9.1 percent rise in revenue during the first quarter.

PARIS — PPR rode strong demand for luxury goods in the first quarter to post a better-than-expected 9.1 percent rise in revenue during the period, despite an abrupt drop-off in sales in Japan following the March 11 earthquake and tsunami.

This story first appeared in the April 28, 2011 issue of WWD.  Subscribe Today.

PPR — whose assets range from luxury brand Gucci to books, music and electronics retailer Fnac — posted revenue of 3.71 billion euros, or $5.07 billion, in the three months to March 31 versus 3.4 billion euros, or $4.71 billion, in the same period a year earlier, up 6.5 percent on a comparable basis.

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

The Luxury Group division — which includes Gucci, Yves Saint Laurent and Bottega Veneta — posted revenues of 1.13 billion euros, or $1.54 billion, in the first quarter compared with 895 million euros, or $1.24 billion, in the year-ago quarter — up 26.2 percent in reported terms and 22.1 percent in comparable terms.

“These performances testify to our vigorous organic growth dynamic,” PPR chairman and chief executive officer François-Henri Pinault said.

“I am therefore confident that in 2011, PPR will be able to maintain its revenue growth momentum and surpass its 2010 financial performance, building on the strength of its business model and the pertinence of its strategy,” he added.

While emerging markets continued to power growth, mature economies also saw strong demand. In North America, for instance, wholesale revenues for the group’s luxury labels rose 30 percent during the quarter, deputy ceo and chief financial officer Jean-François Palus told analysts in a conference call.

“All told, we couldn’t have hoped for a better quarter in all of our luxury goods businesses and are confident that they will continue to outperform for the balance of the year,” he said.

Gucci, which is celebrating its 90th anniversary, saw double-digit sales increases in all territories except for Japan, where sales were down 7 percent. The recent launch of a children’s collection has helped attract new clients into stores, Palus noted.

Sales in North America rose 35 percent in the quarter, making it the strongest performer geographically, showing that the brand definitely has put behind it the errors made with the product assortment last year, which resulted in shortages and lost sales in the first half.

Yves Saint Laurent had a stellar quarter with sales up 29.4 percent, driven by ready-to-wear, and was set to sustain that momentum thanks to a strong increase in orders for its fall-winter collection.

Including sporting goods firm Puma, which separately reported a 13.2 percent sales increase on Wednesday, combined sales for the luxury and sport & lifestyle divisions were up 20.6 percent during the period.

PPR’s retail banners, which it has put on the block, did not fare as well. Sales at Fnac fell 2.4 percent in the quarter to 959 million euros, or $1.31 billion, with sales flagging in France, Portugal and Spain.

Mail-order division Redcats, which sells a range of apparel and household items via catalogue and the Internet, posted its third consecutive quarterly sales increase, but revenue rose by just 1.1 percent to 853 million euros, or $1.16 billion.

Palus said he expected sales in Japan to continue to suffer from the aftermath of last month’s catastrophe, though he added: “I think we will all be happily surprised by the speed at which the country returns to normalcy.”

He noted there was a sharp drop-off in sales for Gucci and Bottega Veneta in the two weeks following the earthquake.

“Since then, I would say that some weeks are positive, some weeks are negative and what I can tell is that the first three weeks of April show a trend that is better or similar to the first quarter for all our luxury brands,” he added.

Palus predicted gross margins in the luxury division would remain strong despite a sharp increase in the price of oil and raw materials.

“In luxury, gross margin is holding up very well not only due to an improvement in initial gross margin but also a reduction in markdowns. In hard luxury, we have a burden with the significant increase in raw material prices, but we managed to compensate with good pricing and a good mix impact,” Palus explained.