Byline: Samantha Conti / With contributions from Katherine Weisman, Paris

Milan — Gucci Group NV roared into new luxury territory in a most timely manner Tuesday with a small but significant acquisition: French jeweler Boucheron International SA.
The group also released preliminary figures for the first quarter that showed a 27 percent rise in sales in the Gucci division, to $342.9 million, while the group, with results of Yves Saint Laurent and Sergio Rossi now fully consolidated, posted sales of $530 million.
Additionally, Gucci Group revised downward its 2000 earnings-per-share estimate to $3.10, from $3.45, after the Securities and Exchange Commission said that Gucci must amortize goodwill and acquired trademarks over 20 years, rather than the 40 years originally planned. Gucci earned $3.28 in 1999 and said it would have exceeded its original $3.45 projection without the SEC-mandated adjustment.
Gucci chairman and chief executive Domenico De Sole told WWD he sealed the Boucheron deal late Monday, and that his plans for the Place Vendome jeweler were simple: Build the brand. “This is a brand with a deep heritage. Mr. Boucheron made one of the first wristwatches. It’s a clean brand — there are no licenses, no franchises. It’s also underdeveloped. There are no Boucheron stores, for example, in the U.S.”
Although no purchase price was disclosed, Gucci said Boucheron’s annual sales were $85 million. Fragrances account for about 57 percent of that volume, while jewelry represents 43 percent. Watches account for 35 percent of jewelry sales. Boucheron is set to hold a press launch Wednesday for a new women’s fragrance to add to its current fragrance brands of Boucheron, Jaipur and Jaipur Saphir.
The French company, founded in 1858, produces and distributes its own fragrances. In addition, Boucheron has recently created a Japanese subsidiary and bought back eight franchises there in a bid to tighten control over distribution.
Gucci Group’s acquisition comes on the heels of LVMH Moet Hennessy Louis Vuitton’s purchase of Chaumet, Tag Heuer, Ebel and Zenith, and signals that the race to acquire top jewelry and watch brands is heating up.
Gucci purchased Boucheron from Schweizerhall Holding AG, a company quoted on the Zurich stock exchange, whose holdings are chiefly in the chemicals sector. Jean-Claude le Rouzic, chairman of Boucheron, said his company was not a priority for Schweizerhall. “If we are going with Gucci, it’s because we want to develop the brand, open jewelry stores, and expand the fragrance business. We share the same idea about developing a global brand,” he said.
Le Rouzic added that Gucci was attractive because of its financial backing, its strategies in the luxury sector — and its management. “De Sole, Francois Pinault, Serge Weinberg — we are all on the same strategic wavelength,” he said, adding that the Boucheron business would remain relatively independent within Gucci Group.
Pinault is the owner of the retail group Pinault Printemps Redoute (PPR), which is Gucci’s largest shareholder. Weinberg, the chairman of PPR who spoke on Tuesday at the company’s annual shareholders meeting, described Boucheron as “one of the most prestigious luxury brands.” He said more acquisitions would be forthcoming, thanks to more than $2 billion in Gucci’s coffers.
PPR gave Gucci Group a healthy cash injection last year in exchange for a 42 percent stake in the company. Gucci is using that money — and the interest it has been generating — for acquisitions in its quest to build an international luxury goods group.
De Sole said there were clear synergies between Gucci and Boucheron’s watch and fragrance businesses, even while stressing that the two brands would remain “totally separate.” While he said cost structures would be rationalized, he demurred on any plans regarding Boucheron. “It’s too early to say anything.”
Gucci owns Sanofi Beaute, which includes YSL fragrances and cosmetics and the Roget et Gallet brand as well as the licensed fragrance business of Oscar de la Renta, Van Cleef & Arpels, Fendi and Krizia. The group also owns the watch manufacturer Gucci Timepieces, a former licensee which it acquired in 1997. In the fourth quarter of 1999, Gucci’s watch sales grew 9.2 percent to $67.8 million.
De Sole added that Gucci Group creative director Tom Ford probably won’t be designing Boucheron’s next collections, although he was “very involved” with the acquisition. In addition to being creative director of the group, Ford is the chief designer of Gucci and YSL. A member of Gucci Group’s management team, he follows the business together with De Sole.
De Sole also said Gucci’s jewelry line would continue to be produced in-house in Italy and not by Boucheron. Jewelry — one of Gucci’s newest divisions — rocketed 146.3 percent to $15.4 million in the fourth quarter of 1999.
Analysts praised the acquisition and said Boucheron probably would not distract Gucci from its two main tasks: Plumping sales at the Gucci Division and revamping Yves Saint Laurent and Sergio Rossi, both of which it bought late last year.
John Wakeley, an equities analyst with Lehman Brothers Inc. in London, said, “The key here is that Boucheron brand doesn’t need to be resuscitated; it needs to be extended. The company should get a lot bigger now that it has access to the Gucci distribution network, and Gucci will be able to expand its own business with Boucheron.”
Claire Kent, an equities analyst with Morgan Stanley in London, said while she was surprised by the acquisition, she thought it made sense. “I wouldn’t have anticipated it, I’m positively surprised. I was expecting Gucci to make an acquisition in a more fashion-related, soft luxury company. That said, there are synergies in the watch and perfume divisions, and the Boucheron management is strong.”
On Tuesday, Gucci also announced that Yves Saint Laurent Couture had bought back all of the YSL licenses from Cartier International, including those for the production and distribution of watches, jewelry, tabletop goods, lighters, pens and gifts. YSL Couture also took back the license for the production and distribution of its footwear in the U.S. and parts of Asia. Schwartz & Benjamin controlled that license. As previously reported, YSL’s shoes are now being made by another one of Gucci’s new acquisitions: Sergio Rossi. Taking back key licenses is part of the Gucci Group’s business model and reflects the company’s strategy of managing the production and distribution of all its collections. “The more you give to other people — whether they be licensees or franchisees — the more they will interpret the brand. It’s all a question of brand control,” De Sole told WWD earlier this year.
Tuesday’s statement said Gucci Timepieces would also launch a new collection of YSL watches and jewelry beginning next year. De Sole added that this collection would be manufactured in Italy by laboratories similar to the ones that make the Gucci jewelry collection.
Meanwhile, Gucci has also formed a joint venture with its long-time franchisee F.J. Benjamin Holdings for the distribution of the Gucci, YSL and Sergio Rossi collections in Singapore, Malaysia and Australia. Gucci will control 65 percent of the joint venture company.
De Sole said the franchise agreement with F.J. Benjamin was due to run out in 2002, and that forming a joint venture was an ideal way to preserve the relationship and take control of distribution. F.J. Benjamin currently controls 10 Gucci stores that are expected to generate $41 million in sales this year. The new joint venture company takes effect at the end of next month.
“We are keen to upgrade our presence in those Asian markets — which are back in force,” De Sole said. In the fourth quarter of 1999, sales in Asia — not including Japan — rose 28.2 percent to $63.7 million.
Gucci also released preliminary results for the first quarter ending April 30. The company said complete results would be issued on June 21.
Sales of the group reached $530 million, compared with $270 million in the corresponding period last year. Gucci Group, however, only began consolidating figures from the YSL and Sergio Rossi acquisitions in the fourth quarter of 1999. The statement said net income, before goodwill amortization and restructuring costs, would reach $82 million. Including those costs, the statement said net income would reach $45 million, and earnings for the period would reach 45 cents a share.
Sales in the Gucci division rose 27 percent to $342.9 million. Retail sales rose 31.5 percent and wholesale sales grew 38.3 percent. Sales jumped 34.5 percent in the continental U.S., 29.2 percent in Europe, 37.5 percent in Japan and 40.4 percent in Hong Kong.
Led by leather goods, all product categories posted an increase in sales. Sales of leather goods rose 38 percent, clothing rose 28 percent and jewelry rose 132 percent. The statement said sales in the YSL and Sergio Rossi divisions were “in line” with management’s expectations.
Morgan Stanley’s Kent said Gucci’s figures were higher than what she had forecast. Kent had projected Gucci Group’s sales to reach $486 million and the sales rise in the Gucci Division to be 25 percent. “Business is booming for Gucci, more than we had expected,” she said.
Gucci also said that it has been advised by the SEC that goodwill amortization must take place over 20, rather than 40 years. That means the amortization relative to the YSL and Sergio Rossi acquisitions will rise to $50 million annually. Kent explained that while the new amortization schedule will affect Gucci’s bottom line, it would not affect its cash flow. “This is an accounting, and not a business consideration,” Kent said.
De Sole said he was disappointed with the SEC decision. “We believe that YSL and Sergio Rossi will generate high profits for many years to come — and certainly for more than 20 years,” he said.
In addition, the Gucci statement said restructuring costs related to YSL and Sergio Rossi would reach $38 million, $32 million of which will be part of the first quarter results. Annual savings related to these costs will reach about $22 million, beginning in 2001.