Byline: Thomas J. Ryan — with contributions from Sara Gay Forden, Milan, and James Fallon, London

NEW YORK — Just as Gucci’s business is catching fire, Investcorp is cashing out.
Capitalizing on Gucci’s report of rocketing 1995 results on Tuesday, Investcorp SA filed a secondary offering to sell its remaining 52 percent stake in the company.
At current prices, the secondary offering could raise about $1.3 billion for Investcorp.
The selloff ends one chapter in Gucci’s turbulent history and opens a new one — as one of Italy’s few truly public companies. And Gucci — which completed a highly successful initial public offering in October — clearly has momentum, churning out eye-popping gains in both sales and earnings for its year ended Jan. 31. Among the highlights:
* Sales surged 89.7 percent to $500.1 million from $263.6 million, with explosive growth registered in all products, distribution channels and geographic areas. Retail sales in its own stores accounted for 75 percent of the total.
* Net earnings vaulted nearly five-fold to $81.4 million, or $1.65 a share, from $17.3 million, or 38 cents.
* Gross margins improved to 65.9 percent of sales from 63.8 percent the prior year.
* Selling, general and administrative expenses were slashed to 41.9 percent of sales from 51.8 percent.
* Operating income nearly quadrupled to $120.1 million, representing 24 percent of sales, from $31.5 million, or 12 percent, a year ago.
“We are delighted with the outstanding performance of our business worldwide, as reflected in our growth in all major product categories, distribution channels and geographic markets,” Domenico DeSole, president and chief executive officer, said in a statement.
“We attributed these gains to the worldwide strength of the Gucci brand, as well as our product-repositioning strategy, improved product delivery, increased store productivity and enhanced advertising programs.”
For Investcorp, the closing out of its stake represents a grand finish to a turbulent investment started in 1987.
According to the prospectus for its IPO, Investcorp paid $245.8 million for its 100 percent stake in Gucci. The $1.3 billion that could be realized from the secondary offering, is on top of $228 million Investcorp netted in the October IPO for a total payback of over $1.5 billion.
The investment firm, based in London and Bahrain, which owned Gucci prior to the October IPO and also owns Saks Fifth Avenue, plans to sell 26.4 million shares in the latest offering, and it has granted underwriters an over-allotment option to purchase its remaining 3.93 million shares. Investcorp sold 11 million shares in the October IPO.
The latest offering is being underwritten by Morgan Stanley, CS First Boston and Salomon Bros. The company itself will not receive any of the proceeds. Gucci will continue to have 58.5 million shares outstanding.
Investcorp acquired its 100 percent stake in Gucci in 1993, when the Florentine fashion house was on the brink of liquidation, a hostage to the bitter conflict between its two 50 percent shareholders: former chairman Maurizio Gucci and Investcorp, which acquired its initial stake from other Gucci family members in 1987.
By the end of that year, however, Investcorp had struck a deal with the last remaining family member to run the company and bought him out, thus acquiring sole control of the firm. With new management and fresh resources, Gucci started a speedy recovery and by the end of the first year, its executives were already reporting improvements. Since then, Gucci has made both fashion and financial history.
After mounting rumors that Investcorp was looking to sell the company to another luxury goods house, Investcorp decided instead to take Gucci public in October.
It turned out to be a smart move. The investment community was as eager to have Gucci stock as the fashion world was to have Gucci loafers. Even before the placement, Investcorp increased its offering from 30 percent to 48 percent of the outstanding shares, expanding its size to 24.5 million shares from 16 million. Gucci’s listing was an immediate success. The stock price bid up to 26 in the first few minutes of trading from the set price of 22. It closed Tuesday at 43 1/2, down 3/8, on the New York Stock Exchange.
“It was the most exciting thing that ever happened to me in my working life,” De Sole, who has been with Gucci for 15 years, told WWD at the time.
An Investcorp official in London involved in the deal said the sale fits in with the company’s role as a financial investor seeking to raise capital for its clients. He noted that the nine-year investment was held longer than any of its other investments.
As for the timing, Investcorp had been advised by investment bankers that demand for Gucci’s shares continues to outstrip supply because of the Investcorp overhang. To increase the share’s liquidity, the bankers said, Investcorp should sell its stake now. The investment company always planned to sell at some stage, so it followed the bankers’ advice. The Investcorp official said the reception of Gucci’s most recent show in Milan was excellent and that orders for fall-winter 1996 are strong as a result.
Gucci’s sales growth was tremendous last year in all categories.
By product, sales of leather goods jumped 133.6 percent to $258.4 million, accounting for 52 percent of sales. Shoe sales catapulted 127.3 percent to $88.2 million, and ties and scarves gained 45.4 percent to $33 million,
Sales of ready-to-wear rose 36.9 percent to $60.8 million and watches, 36.3 percent to $15.4 million. Both rtw and watches are produced by third parties under license.
Sales of Gucci’s other products, which include eyewear, perfume, tableware and personal items, increased 55.3 percent to $16 million.
Revenues from royalties on licensed Gucci products rose 11 percent to $28.3 million from $25.5 million. Watches represented 77 percent of royalty income.
Explosive growth was also seen in all major distribution channels and major geographic markets.
By distribution channels, sales at Gucci’s directly operated retail stores surged 103.5 percent to $373.9 million. At franchise stores, sales surged 67.2 percent to $34.1 million; duty free stores, 150.9 percent to $28.1 million, and wholesale, 800 percent to $18.9 million from $2.1 million. Sales to other distribution channels sank 18.8 percent to $16.8 million.
By geographic region, U.S. and Caribbean sales vaulted 103.7 percent to $178 million; Italy, 111.2 percent to $58.3 million; Europe (excluding Italy), 62.2 percent to $41.2 million; Japan, 120.5 percent to $108.5 million, and the Far East (excluding Japan), 127.9 percent to $70.2 million. Sales to the rest of the world declined 11.9 percent to $15.6 million.
The momentum has been building steadily around Gucci ever since Investcorp bought the entire company. The company has become Milan’s hottest fashion phenomenon since Prada. Gucci’s fashion show last week was the highlight of Milan’s designer collections, with buyers and press lavishly praising creative director Tom Ford’s move to more modern, elegant styles from the Sixties and Seventies looks that first put him in the fashion spotlight two seasons ago.
“We loved the cool chic of Tom Ford. He made his clothes multipurpose and managed to express his vision with just a handful of items,” said Kal Ruttenstein, senior vice president of fashion direction at Bloomingdale’s.
Nicole Fichelis, vice president and fashion director of Saks Fifth Avenue, said, “We loved Gucci’s sexy sophistication and head-to-toe mood.”
Aside from the clothes, Gucci’s shoes and accessories are now in such demand stores can’t keep them in stock. Last season, Bergdorf Goodman had a waiting list of 285 for Ford’s high-heeled horse-bit pump.
“My whole idea is to bring back the Gucci of the Fifties, Sixties and Seventies, when it was cutting edge, even to the point of being flashy,” Ford told WWD in a recent interview. “I wanted to bring that edge back.” The company only returned to profitability in 1994 after a string of steep losses that started in 1991. It said it has been helped by a repositioning strategy that included upgrades in reorder and replenishment processes to improve delivery, investments in MIS capabilities, and cost-cutting initiatives.
Gucci also said it has been helped by a more aggressive advertising campaign and stronger demand in the luxury good markets, according to the SEC filing for the secondary offering.
Gucci’s advertising and communication expenses more than doubled last year to $28 million from $11.7 million. The firm plans to increase advertising and communication expenses to $47 million this year, according to the filing.
Capital expenditures are set at $48 million in fiscal 1996, up from about $18 million in fiscal 1995. The hike in spending will pay for new stores, refurbishment of others and the introduction of MIS improvements.
Over the next two years, Gucci plans to open 18 new directly owned stores, including four in major department stores in Japan and four in Germany. It also plans to refurbish flagship stores in New York, Beverly Hills and Paris over the next two years.
By the end of fiscal 1997, it plans to enter 14 new franchise stores and sell to 93 additional department and specialty stores.
As of Feb. 1, Gucci had 65 directly operated stores and 83 franchised units. It was also selling its products in 74 duty-free boutiques and 187 department and specialty stores.
Gross margins last year were helped by increased sales of higher-margin leather goods and a higher percentage of sales sold in its directly operated stores.

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