The Economy Bites Into Gucci’s Profits, But Turnaround Seen
MILAN — A better performance from Yves Saint Laurent wasn’t enough to help Gucci Group NV stave off a larger-than-expected drop in first-quarter profits — although the company still predicts a big turnaround in the second half. With...
MILAN — A better performance from Yves Saint Laurent wasn’t enough to help Gucci Group NV stave off a larger-than-expected drop infirst-quarter profits — although the company still predicts a big turnaround in the second half. With spending phlegmatic and tourism and travel remaining far below year-ago levels, Gucci sustained a 42.2 percent drop in net income to $33.7 million, or 33 cents a diluted share, from $58.4 million, or 61 cents, in the year-ago period. Operating profit before goodwill and trademark amortization dropped 35.2 percent to $48.6 million from $74.9 million in last year’s first quarter, translating into an 8.4 percent margin in the most recent quarter versus a 12.8 percent margin in last year’s period.In the quarter ended April 30, Gucci reported total revenues of $578 million, down 1.5 percent from $586.7 million last year. Dollar figures have been converted from the euro at current exchange.Continued from page oneyear-ago period. Operating profit before goodwill and trademark amortization dropped 35.2 percent to $48.6 million from $74.9 million in last year’s first quarter, translating into an 8.4 percent margin in the most recent quarter versus a 12.8 percent margin in last year’s period.In the quarter ended April 30, Gucci reported total revenues of $578 million, down 1.5 percent from $586.7 million last year. Dollar figures have been converted from the euro at current exchange.However, Gucci shares showed no signs of deterioration as majority owner Pinault Printemps Redoute’s offer to buy Gucci shares from investors for $101.50 in April 2004 supported the stock, which closed at $96.70, up 95 cents, or 1 percent, in New York Stock Exchange trading.Other support came from Gucci president and chief executive Domenico De Sole, who said the company continues to expect a substantial turnaround in the second half of the year, and a 15 percent reduction in operating losses at Yves Saint Laurent.“The trading environment will remain difficult, but we expect a rebound in the second half of the year,” De Sole told WWD in a phone interview. Gucci expects 2002 revenues to rise to approximately $2.5 billion from $2.29 billion in 2001, but net income per share to land anywhere between $2.40 and $2.80, from $2.74 in 2001. Petra Rinsma, an analyst at SNS Securities in Amsterdam, said first-quarter results were “a little bit disappointing” and came in below her forecasts for net profits of $53.2 million.Claire Kent, an analyst at Morgan Stanley, said the results were “more a sign of the environment than anything Gucci-specific.” Analysts were pleased with impressive numbers at Yves Saint Laurent and the progress made with other recent acquisitions, but they stressed that they were disappointed with sales at the core Gucci brand. This division posted revenues of $353.1 million, down 11.9 percent from $400.7 million last year, hurt mostly by weakness at the retail level.“Losses at the [non-Gucci] divisions were a bit lower than expected, but the Gucci division is the most important,” said Rinsma. The Yves Saint Laurent division narrowed its first-quarter operating loss before goodwill and trademark amortization to $18.7 million from $22 million in the comparable 2001 quarter. De Sole said that while the Gucci division remains the “backbone” of the group, the company is making progress on its multibrand strategy. “After we put in place strong management and design teams, each brand has made significant progress in developing new product lines, rolling out retail and wholesale points of sale and defining the brand image,” said De Sole. De Sole highlighted the expansion of Yves Saint Laurent, which saw retail sales grow 177 percent to $20.7 million. Leather goods continued to make up the bulk of Gucci division sales, but dropped 13.6 percent to $172.9 million. Ready-to-wear revenues were off 17.1 percent to $48.3 million, footwear declined 6.6 percent to $44.1 million and watches declined 15.5 percent to $40.3 million.For the Gucci division, retail sales in the first quarter fell 9 percent, or 6.6 percent on a constant currency basis, to $245.6 million. The U.S., and Hawaii in particular, were affected by a slowdown in tourist traffic: The U.S. declined by 25.7 percent, while Hawaii fell by 41.5 percent. “Hawaii was worse than I expected,” said De Sole, who declined to break down U.S. retail sales excluding Hawaii. De Sole, however, defended company plans to open a Gucci and a Yves Saint Laurent flagship in Hawaii later this year as part of a long-term strategy: “Hawaii goes up and down, and we’ve seen crises there before. We can’t really make decisions on a day-to-day basis.” Elsewhere, South Korea saw a 33 percent rise, while Hong Kong saw an 18.3 percent drop. Japan and Europe were stronger, with retail sales rising 9.5 percent and 6.6 percent, respectively.In 2002, Gucci plans to open new directly operated flagships on London’s Bond Street, on Paris’ Avenue Montaigne and on New York’s Madison Avenue. Gucci will also expand its Milan boutique on Via Montenapoleone.Wholesale revenues for the Gucci division dropped 23.4 percent to $56.5 million from $73.6 million last year. Gucci attributed this slide to early shipments of the spring collection in January 2002, moving revenues out of the first quarter, and contracting demand from retailers, especially duty-free sales points.De Sole reiterated that the Gucci division will reach an operating margin before goodwill amortization of approximately 30 percent for the full year. In the first quarter of 2002, however, that margin fell to 25.3 percent of revenue from 27 percent on slower sales. On a gross level, the Gucci division profit margin advanced to 70.1 percent from 68.8 percent last year, boosted by factors such as cost-cutting and synergies.“I’m impressed by Gucci’s ability to cut costs to prevent profit from falling further,” said Morgan Stanley’s Kent. In an effort to attract even more exclusive customers, Gucci will roll out a limited selection of custom-made items ranging from handbags, shoes and men’s ready-to-wear.At the Yves Saint Laurent division, De Sole said the popularity of the Mombasa bag is fueling the renewed image of the house. Overall, Yves Saint Laurent revenues grew 63.2 percent to $31.4 million. In the first quarter, sales of leather accessories and shoes grew 206.9 percent, representing 26.6 percent of revenues, compared with 14.2 percent in 2001. “Part of the Gucci plan is to try to foster the contribution from accessories at Yves Saint Laurent,” said one analyst, noting how this strategy mirrors the Gucci division. De Sole said he expects profitability for this division in 2004."
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