AMSTERDAM — Gucci chief Domenico De Sole and his majority shareholder, Pinault Printemps Redoute, sought to ride out market fears the French retailer could renege on its $5 billion commitment to buy the 47 percent chunk of Gucci it doesn’t already own in 2004.
This story first appeared in the July 16, 2002 issue of WWD. Subscribe Today.
Speaking to shareholders here, PPR chief Serge Weinberg insisted his French company was fully committed to buy all of Gucci,?while De Sole said the Italian group is on track to meet its cautious financial targets for 2002, despite a market that he said will be tough for the rest of the year.
“If things stay the way they are, we think we will meet our expectations,” he said on the sidelines of the meeting.
There has been some concern in the market over whether PPR will have enough cash to buy out all outstanding Gucci shares at $101.50 a share in 2004. The agreement was part of the peace-brokering deal PPR and LVMH struck last September to pave the way for LVMH to sell its Gucci stake after a foiled attempt to take over Gucci in 1999.?Since then, PPR shares have slid on market concerns about the group’s finances. Some have speculated that PPR will have to make significant asset sales to generate cash because its balance sheet is already stretched after a disappointing 2001 led to a credit rating downgrade in April to one notch above junk bond status.
“There is absolutely no doubt PPR will honor its commitment,” Weinberg said at the shareholders meeting to approve Gucci’s 2001 results, which showed a 17.3 percent drop in net profit to $278.4 million. He added that PPR has no shortage of resources to come up with the funds needed for the offer, although he did not specify what those resources were. In a case that would create the unlikeliest of bedfellows, both LVMH and Gucci have a right to seek monetary damages from PPR if it fails to launch the share offer.
De Sole also said he is confident PPR will stick to its promise to offer $101.50 for each Gucci share in 2004, but?management is “working tirelessly” to ensure that shares rise above that level so investors won’t opt to tender their shares. Gucci shares closed down $1.49, or 1.7 percent, at $87.01 Monday in New York Stock Exchange trading.
Elsewhere, De Sole is banking on a recovery in the second half of the year enabling Gucci to meet its targets for fully diluted net income per share of between $2.58 and $2.98 for the year ending Jan. 31, 2003, compared with $2.74 the year before, and revenue of about $2.68 billion compared with $2.29 billion for the year ended Jan. 31, 2002. Dollar figures have been converted from the euro at current exchange rates.
De Sole said market conditions for the rest of the year should be tough, citing weakness in key tourist spots like Hawaii, but he noted that comps in the second part of the year should be easier than in the first six months, as the market for luxury goods in the first part of 2001 was relatively good before Sept. 11.
Regarding the ongoing turnaround at Yves Saint Laurent, De Sole reiterated that the French house should break even in late 2003 and post profitability for full-year 2004. He said sales at the brand are stronger than expected, but rather than beating profitability targets, Gucci is focusing on reinvesting some of that money in advertising and new stores to boost the brand. He declined to quantify those investments but De Sole said Gucci plans to have 43 directly operated YSL stores by the end of this year and about 60 by the end of 2003.
Noting the popularity of the YSL Mombasa handbag, De Sole highlighted the importance of YSL’s “rapidly-growing reputation in the high-margin accessories business.”
There was still no word on the state of De Sole’s contract, which expires in 2004. Supervisory board chairman Adrian Bellamy remarked during the meeting that De Sole’s and creative director Tom Ford’s futures with the company are “very much on our minds” and would be a topic of conversation at a meeting of the supervisory board later Monday but he declined to specify further. De Sole, who is 58, declined to comment on whether he will seek to renew his contract or retire.
“We hope they will remain with the company for a significant amount of time,” said Bellamy. “We have every reason to believe that will be the case.”
Monday, shareholders backed Ford’s nomination to Gucci’s three-member management board as vice chairman. That move prompted some analysts to speculate on whether he is being groomed to one day take over as ceo from De Sole. Ford is well regarded as having a key role in shaping Gucci on both the creative and business sides.
Ford did not attend the shareholders meeting. De Sole said the designer could not make it as he was working in the U.S.
On the acquisition front, De Sole said Gucci is keeping its eyes open but it is currently focusing on developing its current stable of brands ranging from handbag group Bottega Veneta to fashion labels Stella McCartney and Alexander McQueen. Bellamy said shareholders shouldn’t “expect any significant action in the short term.”