By  on October 21, 2009

PARIS — PPR SA reported a worse-than-expected slump in third-quarter sales, reflecting the continuing economic crisis, a decrease in tourist flows and a slowdown in wholesale orders as retailers preferred to keep inventories low.

The French retail-to-luxury group said sales in the July to September period declined 7.6 percent to 4.56 billion euros, or $6.58 billion. Sales were down 8 percent on a comparable basis versus forecasts of a 6 percent drop. Dollar figures were converted at average exchange rates for the period.

“PPR faced the convergence in the third quarter of 2009 of several unfavorable factors,” stated chief executive officer François-Henri Pinault.

Weak flows of Russian and Middle Eastern tourists in Europe, particularly Italy and the south of France, and slow wholesale orders hurt PPR’s luxury goods operations. Gucci Group also faced the challenging economy and a difficult comparison with the third quarter of 2008, when sales rose 9 percent.

The unit, which includes brands such as Gucci and Bottega Veneta, reported a 10 percent decline in comparable sales as weak wholesale activities dented a good performance from directly owned boutiques.

Comparable sales at flagship brand Gucci declined 7 percent, while Bottega Veneta was down 11.6 percent. Nevertheless, both brands reported strong business in the Asia-Pacific region, where customers invested in iconic handbags such as Bottega’s Cabat and Gucci’s Icon.

Yves Saint Laurent sales decreased 20 percent against a high comparative in the same quarter a year earlier. The brand was also penalized by the slowdown in traditional markets, which account for 75 percent of its sales, PPR said.

Sales of YSL leather goods and shoes, however, remained buoyant, fueled by the strong reception of new products.

Sales of other brands were down 15.3 percent in the quarter, reflecting slow wholesale orders. But Balenciaga continued to grow, especially in directly operated stores.

Sales at Puma, in which PPR has a stake of around 69 percent, were down 9.8 percent, hurt by a tough market in the Americas region.

The general retail division — which includes household furnishings stores Conforama, book and music chain Fnac, mail-order retailer Redcats and CFAO, a distributor of cars, pharmaceuticals and consumer goods in Africa — reported a mixed performance.

Fnac’s improved offering offset a sluggish market, with comparable sales rising 0.5 percent, but other units didn’t perform as well. Sales at mail order business Redcat suffered as consumers reined in nonessential apparel expenses, sending sales down 10.2 percent. Sales at Conforama dropped 9.9 percent reflecting a slowdown in home furnishings.

During a conference call, chief financial officer Jean-François Palus said both general retail and Gucci Group’s retail operations have reported growth during the first three weeks of October, but added that “it’s far too early to make predictions for the fourth quarter.”

PPR hasn’t provided any profit guidance for 2009.

However, Palus noted “the early signs of optimism in mature markets should drive customers to our stores as well as those of our [wholesale] customers.”

Deutsche Bank on Monday upgraded its forecasts for the luxury sector for the first time in almost two years, saying there are signs that destocking by retailers is easing off. Bain & Co. said it expects global sales of luxury goods in 2009 to be down 8 percent on the year, compared with a previous forecast for a 10 percent decline, because markets are stabilizing in the second half.

At the same time, the consultancy forecast a 12 percent jump in luxury goods sales in Mainland China this year.

The strength of Asian markets, excluding Japan, during the recession was underscored by PPR’s performance in this region, where Gucci Group’s sales rose 25 percent, driven by a 37 percent growth in China.

As a result, PPR is accelerating its store-opening plan in the region. Impacted by the economic crisis and the sharp downturn of the auto industry, CFAO’s sales were down 10.9 percent in the third quarter. PPR is aiming to spin off CFAO by the end of the year if market conditions allow. Although the business is one of the company’smost profitable units, it does not fit into PPR’s strategy of focusing on luxury and retail.

The planned flotation has spurred speculation that PPR may want to use its proceeds — estimated at 1 billion euros, or $1.49 billion at current exchange rates — to pursue acquisitions. However, Palus said PPR plans to use the proceeds from CFAO’s listing to reduce the group’s net debt, which stood at 6.4 billion euros, or $8.5 billion, at the end of June.

PPR shares closed 0.1 percent higher at 85.17 euros, or $126.98 at current exchange rates, before the release of the sales update.

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