NEW YORK — Gucci Group N.V. said it can grow its operating profits by more than 20 percent in each of the next two fiscal years, but those gains will be driven predominantly by slashing costs.
Gucci forecast a 21.2 percent increase in fiscal 2005 operating income to 447.9 million euros, based on assumptions made in November by the company under former chief executive officer Domenico De Sole, and released by the Securities and Exchange Commission last week.
Fiscal 2006 operating income is budgeted to jump 23.5 percent to 553 million euros, which is equivalent to $541.2 million and $668.1 million, respectively, at current exchange.
Gucci said it does not normally make its financial projections public, but did so in this case as part of Pinault-Printemps-Redoute’s tender offer to buy the fashion house. At the conclusion of the offer last week, PPR owned 99.23 percent of Gucci’s shares.
Although revenues on average are projected to grow at a double-digit pace for the next two years combined, Gucci will increasingly rely on cost cuts to make plan. In fiscal 2005, revenues are forecast to advance 12.1 percent to 3.22 billion euros, or $3.89 billion, while fiscal 2006 revenues should increase 9.6 percent to 3.54 billion euros, or $4.27 billion.
The difference will be made up by major reductions in operating expense. Although fiscal 2005 gross margin is budgeted to slip 20 basis points, operating costs will more than offset that, dropping 120 basis points as a percentage of the top line. The following year will be even more dramatic, as gross margin will tick up 10 basis points and operating expense will plunge 170 basis points as a percentage of revenues.
Gucci cautioned in the filing that its financial projections represented assumptions made by management six months ago and have not been updated since. Among the wild cards factoring into the company’s forecast are general business and economic conditions, as well as assumptions about foreign exchange. Complicating matters is that Gucci conducts trade in six currencies: euros, U.S. dollars, British pounds, Swiss francs, Japanese yen and Hong Kong dollars.
Gucci also said that the financial projections do not take into account whatever plans PPR has for its new subsidiary. The numbers, after all, were drafted by De Sole’s management team, and Gucci is now under the direction of industry outsider Robert Polet, former ceo of Unilever.
As expected, Gucci shares were delisted from the New York Stock Exchange on Tuesday. The remaining Gucci shares which PPR does not own, which is less than one percent, are now quoted as an over-the-counter stock on the Pink Sheets system. Additionally, Bank of America Securities analyst Dana Cohen dropped her coverage of the company, and other analysts are expected to follow, given that Gucci is no longer independently traded.