Byline: Samantha Conti / With contributions from Courtney Colavita

AMSTERDAM — Gucci Group NV is holding steady amid market storms.
The group’s diluted earnings per share for 2000 were $3.31, considerably higher than Gucci’s — and analysts’ — projections of $3.10 to $3.15. However, Domenico De Sole, chairman and chief executive of Gucci Group, is cautious about the year ahead.
He said Thursday that group sales would rise to $2.6 billion this year — $100 million more than the company had originally forecasted — due mainly to acquisitions. Fully diluted EPS, however, will remain at $3.40, as Gucci has already factored in goodwill and amortization costs from the acquisitions it plans to make this year. He did not elaborate on specific acquisitions, including speculation about Valentino and Nicolas Ghesquiere.
“We are mindful of the economy and stock markets, and are cautiously optimistic about the coming year,” De Sole told reporters during a news conference at the Hilton Hotel here to announce the company’s fourth-quarter and yearend results. De Sole said that “better-than-expected” fourth-quarter sales had driven up the EPS figure to $3.31.
“It was a critical year for us. We went from a single-brand group to a multibrand one. And the sales in the fourth quarter were better than everyone had expected. Of course, we’ve done a careful job of controlling costs,” he said.
In the final quarter of the year ended Jan. 31, group revenues were $615.9 million, a 54.3 percent increase over last year. Revenues at the Gucci divisions rose 26.2 percent, to $441.8 million.
Claire Kent, equities analyst with Morgan Stanley Dean Witter in London, said: “The results are very positive and in line with our estimates,” adding that higher-than-expected interest income, lower taxes and lower-than-expected losses at French unit Yves Saint Laurent helped push overall profits higher.
“The EPS figure is very good news for the company,” said Anne Catherine Galetic, an equities analyst at Schroder Salomon Smith Barney in London. “It shows that there was improvement in operating margins and that’s quite an achievement.”
De Sole said February 2001 retail sales were up 29 percent on a constant currency basis, and were driven in part by “a dramatic acceleration of sales in Japan.” He called the sales there “spectacular,” but declined to supply a growth figure for the country. “Sales in Japan were up 38 percent in the third quarter, and I can tell you we’re doing better than that now,” De Sole said.
Sales in the U.S., he said, are “ahead of last year,” although the region is registering single-digit growth. De Sole said there were signs of weakness in part of the West Coast, adding that the company would be “prepared to intervene when necessary+by cutting costs there.”
Industry analysts said softness on the West Coast was due mostly to a decline in consumer confidence in places like Silicon Valley, which was hit hard by a swooning stock market.
Galetic said Gucci’s forecast for single-digit growth in the U.S. is realistic, given current market conditions. “I would have been surprised if they predicted a larger sales increase,” Galetic said. “They’re being cautious, maybe even overcautious in the U.S., but Gucci prefers to be conservative and then have marginal good news, rather than over forecast and be faced with disappointing results.”
Galetic warned against further acquisitions for the group. “Dilution in returns has dropped dramatically. You can argue that the acquisitions are investments for the future, but the company should focus on consolidating investments and providing returns to shareholders,” she said.
Despite the bumps, De Sole said he expected sales at the Gucci division, which generates the lion’s share of group revenues, to rise “at least” 10 percent this year. In 2000, however, sales at the division rose 26 percent, to $1.49 billion.
In the fourth quarter, the Gucci division boasted double-digit sales increases across all major product categories and regions. Sales at Gucci’s directly operated stores — which now number 143 — rose 32 percent, to $321.2 million, while wholesale distribution jumped 27.5 percent, to $54.7 million.
Leather goods continue to be the top-selling product category, with sales rising 43.7 percent, to $212.24 million. Watches came in second, with sales of $65.53 million. Sales actually dropped 3.3 percent in the period, which Gucci attributed to a weak Swiss franc-U.S. dollar exchange rate and tighter control over distribution.
Ready-to-wear sales jumped 30.4 percent, to $64.7 million, followed by shoes, which rose 12.6 percent, to $46.9 million. Jewelry rose 18.3 percent, to $18.2 million, while ties and scarves grew 22.5 percent, to $9.2 million.
Europe generated the bulk of sales in the quarter, rising 31.1 percent, to $124 million; followed by Japan, where sales grew 40 percent, to $117.7 million; and the U.S., where sales increased at a much slower rate — 14.1 percent — to $112 million. Sales in the rest of Asia climbed 21.8 percent, to $77.6 million.
At Gucci’s beauty division, YSL Beaute, sales in the fourth quarter were $116.9 million, sales at Yves Saint Laurent were $17.7 million and those at Boucheron were $26.3 million. Sergio Rossi, which according to De Sole made all of the runway samples for Alexander McQueen’s latest fashion show, generated sales of $15.2 million.
Gucci Group’s other divisions, which include the luxury watchmaker Bedat & Co., which was consolidated for the month of January, kicked in $569,000. Gucci’s latest acquisitions such as Alexander McQueen and Bottega Veneta were not included in the latest results. De Sole said he was excited that McQueen was part of Gucci Group. “Lee — you know Alexander’s first name is Lee — is the kindest, most gracious person. I don’t understand where that ‘bad boy’ image comes from,” De Sole said.
De Sole said the company planned to open 18 new-generation YSL stores this year and have a total of 50 to 60 YSL stores up and running by the end of fiscal 2002. The group also plans to invest $25 million in communication expenses for the YSL line, money that De Sole says will come from Gucci’s cash flow and its formidable cash pile: It still has nearly $3 billion from its strategic partner Pinault-Printemps-Redoute.
As for YSL Beaute, De Sole said the company was focusing on eliminating parallel sales and slashing the number of inappropriate doors. He said the company had reached its goal of an 8 percent operating margin before goodwill and trademark amortization, up from 5.6 percent in 1999. YSL will also launch a new fragrance at the beginning of September.
Despite the investments in YSL, De Sole reaffirmed that the company would register $50 million in losses at the end of fiscal 2001. He has said in the past that YSL would break even in 2002.
For the fiscal year 2000, Gucci Group saw revenues rise 83 percent, to $2.26 billion, with net income reaching $336.7 million. Full-year operating profits before goodwill and trademark amortization were up 49 percent, to $408.4 million, while fully diluted net income per share before goodwill and trademark amortization was up 12 percent, to $3.94.
At the Gucci division, full-year revenues were $1.49 billion, 26 percent higher than 1999. Full-year operating profits before goodwill and trademark amortization were $403.7 million, or 27 percent of revenues. YSL posted yearend revenues of $97 million, while full-year operating losses before goodwill and trademark amortization were $15 million.
De Sole also said the company “would probably” appeal a decision by the Enterprise Chamber of Amsterdam’s Court of Appeals to investigate the company’s management practices during the first half of 1999. Gucci rival and shareholder LVMH Moet Hennessy Louis Vuitton had requested the investigation in its attempt to unravel the Gucci-PPR partnership. “We’re waiting for our attorney’s opinions on that,” De Sole said, referring to the appeal.
He said the investigation, ordered earlier this month, would take six to eight months and that Gucci was “confident” it would prevail in the case.