PARIS — Serge Weinberg, chief executive of Pinault-Printemps-Redoute, is very happy with the Gucci purchase.
Sending an upbeat message to PPR shareholders at the company’s annual meeting here Tuesday, Weinberg amplified recent comments by François-Henri Pinault, chairman of PPR parent Artemis, that the $9 billion, or 7.2 billion euros at current exchange, paid for Gucci Group was a good investment for the retail conglomerate.
“We are extremely confident in our ability to transform these investments into profits,” Weinberg told an audience at the Carrousel de Louvre, with scenes from recent Gucci and Yves Saint Laurent fashion shows playing in the background. “We don’t have any need to acquire more brands.”
He said sales were advancing at a double-digit rate at the end of April for the Gucci brand, 15 percent at YSL, 50 percent at Bottega Veneta and in the range of 5 to 6 percent for its other brands.
Weinberg, interim ceo at Gucci Group until Robert Polet arrives from Unilever on July 1, also mapped out some of the growth opportunities for PPR’s new luxury division, highlighting watches, jewelry and home products as areas to develop at Gucci. He also noted the brand has potential to grow in emerging markets such as China, which currently represents less than 2 percent of Gucci’s turnover.
Weinberg underscored the profitability of the Gucci brand in anticipation shareholder concern about the level of losses at YSL and other emerging brands. Converted at average exchange, losses at YSL were 76.4 million euros, or $87.7 million, for fiscal 2003, while the emerging brands lost 12.5 million euros, or $15.3 million, in the most recent quarter. He also reminded shareholders that losses are par for the course in a brand’s development phase, just as its Fnac book and music stores lost money when the chain expanded outside of France.
Speaking about Gucci’s emerging brands — Alexander McQueen, Balenciaga and Stella McCartney — Weinberg said the plan was to enlarge product categories, but to control retail development to major fashion capitals such as Paris, Milan, New York and Tokyo.
As for PPR’s other far-flung activities, which range from catalogues to department stores, Weinberg noted that its Conforama furniture chain has the potential to double its volume. In the four months ended April 30, sales in its retail chains advanced 5 percent.As reported, first-quarter sales at PPR dropped 8.6 percent to $6.91 billion, or 5.76 billion euros, from $7.56 billion, or 6.3 billion euros, a year ago. Factoring out divestments and currency exchange effects, sales gained 5.5 percent.
During a question-and-answer period, Weinberg was peppered with questions about PPR’s debt, inflated by the Gucci purchase, and the likelihood of an imminent disposal of its Rexel electronic components subsidiary. Over the last year, PPR has been selling off its traditional business-to-business activities to focus on retail and luxury.
Weinberg emphasized the group’s strong cash flow and said the debt, which stood at $6.03 billion, or 5.03 billion euros, at the end of last year was “not unexpected.” And he said Rexel would not be sold until its turnaround is complete and PPR could get a good price.
PPR has control of 99.4 percent of Gucci and initiated a court-mandated buyout procedure to get 100 percent of the Italian luxury group. The stock is expected to be delisted shortly in New York and by July in Amsterdam.
Meanwhile, investment firm Morgan Stanley, which had been restricted on PPR due to its business relations with Gucci Group, resumed coverage of the firm and declared it an “uninspiring investment” in a research note published Tuesday. Morgan Stanley rated the stock as underweight.
What’s more, Gucci is likely to struggle for at least a year after the last Tom Ford collection has been sold “as the new designers and recently appointed ceo Robert Polet find their feet,” Rebecca Davis wrote in a report also signed by analysts Claire Kent and Mariela Pissioti. “We believe that the odds are stacked against the new management and design structure.”
The report recommends PPR dispose of Boucheron, described as “undoubtedly the most troublesome of Gucci Group’s brands.” And it stresses that the cash-cow Gucci division cannot afford any mistakes.
“The competition is milking the turmoil at Gucci,” the report said. “If the trend toward focusing on individuality and moving away from logos filters down to the mass luxury market, it could create real problems for a brand like Gucci.”
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