Luxury Brands Push PPR to Sales Gain

PPR eked out a 1.7 percent gain in third-quarter sales to $7.44 billion, with modest gains in luxury goods and at Puma offsetting weakness at its retail arm.

PARIS – PPR eked out a 1.7 percent gain in third-quarter sales to 4.94 billion euros, or $7.44 billion, with modest gains in luxury goods and at Puma offsetting weakness at its retail arm.

“Overall, PPR performed well in the difficult conditions we encountered in the third quarter,” Jean-Francois Palus, PPR’s CFO, told a conference call Thursday. “We are very much focused on cost control and efficiency of operations in all our brands, including luxury brands.”

Palus said sales in October were roughly in line with September, which had improved over a “soft” August. He confirmed the group’s full-year objective of improved financial performances, but skirted around forecasts for 2009.

While hardly downplaying a “worsening macro environment,” Palus trumpeted strong growth for luxury brands in emerging markets and stressed that PPR is “in good shape to resist the difficult conditions …and come out stronger.” He said store expansion would be focused on high-potential regions, “the priority being China.”

Double-digit gains at Yves Saint Laurent and Bottega Veneta contributed to a 4.6 percent rise in Gucci Group sales in the quarter to 876.5 million euros, or $1.32 billion, while Fnac book and record shops, Conforama furniture stores and the distance retailer Redcats all posted single-digit declines.

Gucci, which had stumbled in the first quarter and recovered in the second, posted a 1.6 percent gain in revenues in the three months ended Sept. 30; a 6.2 percent gain at comparable exchange rates to 548.6 million euros, or $826.6 million. (Dollar figures are converted from euros at average exchange rates.)

The company cited 9 percent growth in leather goods, led by Babouska and Indy bags, and touted “excellent” sell-through of the fall/winter ready-to-wear collection, which had a Russian Bohemian theme. Timepieces continue to lag, Palus noted.

The cash-cow Italian brand saw sales jump 30 percent in emerging markets, which account for roughly a third of sales. Palus said sales surged 54 percent in Eastern Europe, 47 percent in the Middle East, 39 percent in China and 27 percent in Asia-Pacific, excluding Japan, where sales were “nearly flat.”

However, Palus rebuffed suggestions PPR might take the brand down-market in the economic crisis. “We will not lower prices just to get through one year, even if there’s financial turmoil,” he said.

He also said Gucci would continue to expand its network of directly operated stores, adding three locations in China, two in Mexico and one in Brazil in the fourth quarter.

Overall, luxury goods showed good resilience in the quarter, up 27 percent in Asia-Pacific, 9 percent in North America, 5 percent in Japan and 2 percent in Europe. Palus also cited “solid” wholesale orders, despite weakness in department stores and in the duty-free channel.

Among major brands, YSL posted the strongest revenue gain in the quarter, up 22.7 percent to 75.4 million euros, or $113.6 million, with double-digit growth in all regions, including Japan, still one of the most sluggish. PPR highlighted a “solid” performance of leather goods, driven by the Muse, Muse 2 and Downtown bags, along with Tribute platform shoes.

The YSL tallies include royalties from YSL Beaute, now owned by L’Oreal, with Palus noting “we have had a satisfactory growth in sales with a positive impact on royalties.”

An “excellent” performance at Balenciaga, with high double-digit gains across all regions and product categories, headlined a 7 percent sales increase in “other brands” to 150 million euros, or $226 million. This group includes Sergio Rossi, Alexander McQueen, Stella McCartney and Boucheron, which logged an exceptional sale of fine jewelry last year, adding up to stiff comps.

Despite difficult comps, Bottega Veneta posted a 6.3 percent increase to 102.5 million euros, or $154.4 million, logging strong double-digit gains in Japan and North America.

Sales at Puma gained 6.3 percent to 712.8 million euros or $1.07 billion, with strong growth in accessories and footwear across most regions.

Apart from its African trading company CFAO, which posted a 14.8 percent revenue gain to 718.3 million euros or $1.08 billion, all of PPR’s other retail concerns posted declines: 1.2 percent at Redcats; 3.2 percent at Fnac; and 6.1 percent at Conforama.

Earlier this week, La Redoute, part of Redcats, announced plans to shed about 13 percent of its workforce, and Palus told analysts Conforama would close 7 unprofitable stores in a bid to improve its operating performance.