MILAN — The second quarter brought an even steeper drop in Gucci Group NV’s profits than the first.
Gucci Thursday reported a 55.1 percent decline in second-quarter net profit and warned that a weaker economy or war in Iraq might cause it to miss its full-year earnings target.
Despite narrowed losses at Yves Saint Laurent, net profit for the three months ended July 31 dropped to $41.8 million, or 40 cents per diluted share, from $93.1 million, or 92 cents, in the prior-year period. Operating profit dropped a commensurate 56.6 percent, to $30.8 million from $70.8 million.
Revenue dropped 6.9 percent to $563.4 million from $605.4 million, dragged down mostly by a larger-than-expected slide in Gucci brand sales. Dollar figures have been converted from the euro at current exchange.
"It’s been a difficult trading environment, particularly in the United States and in Europe," chief executive Domenico De Sole said in an interview. "We’ve seen a slowdown of tourists after Sept. 11 and it continued into the summer."
De Sole said sales were hit especially hard at stores in tourist destinations such as Hawaii, where sales were off 27.6 percent, and Las Vegas.
As reported, first-quarter net income contracted 42.2 percent to $33.7 million on a 1.5 percent sales drop, to $578 million.
Even in a difficult environment, some of Gucci’s biggest competitors appear to be faring better. Looking at the first half of the year, Gucci’s operating profit shed 57 percent compared with a slide of 49.1 percent at Prada and a 10 percent jump at Armani. But De Sole shrugged off comparisons with private companies which, he said, may practice "selective disclosure."
Gucci said it is currently on track to meet its full-year 2002 earning-per-share target of at least $2.54, but it warned it might not make that target if trading conditions deteriorate further. In 2001, when Gucci still posted its results in dollars, the firm logged EPS of $2.74.
"The big question mark is whether there will be a war," said De Sole, recalling his days as the ceo of Gucci’s U.S. division during the 1991 Gulf War. "In a war situation, our industry goes through a lot of suffering."Gucci trimmed its full-year sales and operating margin forecasts. It now sees revenue coming in at $2.54 billion compared to the previous forecast of $2.64 billion, while its operating margin beforegoodwill amortization should come in at 13 percent rather than 14 percent.
Chiara Tirloni, an analyst with UBS Warburg, said she was doubtful that Gucci will make its earnings-per-share target even if market conditions remain as they are. "I don’t understand the basis on which this estimate was made," she said.
De Sole said trading conditions showed some signs of improvement in September, particularly in Europe and the United States, but he declined to provide detailed sales figures.
Investors appeared reassured by this positive sign as shares of Gucci rose $2.14 — or 2.5 percent — Thursday to close at $86.34 in New York Stock Exchange trading.
Gucci division revenue slumped a larger-than-expected 14.2 percent, or 7.5 percent on a constant currency basis, to $358.7 million from $417.95 million the year before.
Retail sales dropped 14.9 percent, or 8.2 percent on constant exchange rates, to $239.9 million from $282 million the year before. Fewer American and Japanese tourists came to Europe for shopping trips, pushing retail sales in that region down by 12.6 percent. Sales in mainland U.S. dropped 17.6 percent, 10 percent better than the decline in Hawaii.
The Gucci brand performed better in Asia. Sales in Japan were flat while those on the rest of the continent grew 2.1 percent.
At the wholesale level, Gucci brand sales declined 10 percent to $65.3 million as sales to travel and duty-free retailers softened.
The division’s operating profit before goodwill amortization fell 22.7 percent to $107.2 million from $138.5 million the year before.
Driven by strong sales of both apparel and accessories, Yves Saint Laurent revenue advanced 34.7 percent to $32.9 million. Still riding high on the success of the horn-handle Mombasa bag, sales of leather goods rose 207.3 percent to $5.9 million on a constant currency basis.
Gucci did not give a more detailed breakdown of YSL revenue, but it said sales of women’s ready-to-wear increased by 50.5 percent, while men’s sales grew by 35.2 percent."They are doing a good job with their collections," said one Milan analyst. But he stressed that the double- and triple-digit percentage sales growth at YSL has to be kept in context. "They are starting from a very small base and they have opened a lot of stores."
Gucci said YSL will have 47 directly operated stores worldwide and about 30 shops-in-shops in the United States and Europe by the end of this year.
YSL’s operating loss before goodwill and trademark amortization narrowed to $13 million from $15.1 million the year before, a result that beat some analyst forecasts.
De Sole said YSL is still on track to break even in late 2003 and turn a profit in full-year 2004.
Elsewhere, YSL Beauté saw an unexpected 3.8 percent drop in second-quarter sales to $103.6 million from $107.6 million. Gucci said sales dropped 0.2 percent on a constant currency basis.
A nearly 4 percent drop in sales is "extremely disappointing," said one analyst, noting better results at competitor Bulgari, which saw a 26.5 percent jump in second-quarter perfume sales.
YSL Beauté posted a wider than expected loss before goodwill and trademark amortization of $8.4 million compared to a loss of $3 million the year before. Gucci said the unit lost more money as it increased provisions against excess inventory.
De Sole declined to specify further about inventory levels or the sales performance of certain products, saying only that the provisions are part of Gucci’s "prudent" strategy.
Gucci’s collection of smaller brands, including Sergio Rossi, Bottega Veneta and Stella McCartney, together generated revenues of $78.8 million, compared with $56.1 million the year before.
Gucci said start-up costs and investments in these brands widened their collective operating loss before goodwill and trademark amortization to $17.4 million from $11.3 million.
Although Gucci did not break down revenue by brand, the company said both Sergio Rossi and Bottega Veneta saw "double-digit" sales growth.
Thursday, Bottega Veneta rolled out the red carpet for its new flagship on Via Montenapoleone.
Gucci also said sales were strong at its "emerging brands."
"Stella McCartney, Alexander McQueen and Balenciaga each experienced strong sell-in of their fall-winter collections, with retailers having already reported excellent sell out," Gucci said in a statement.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews