Gucci hit by euro rise and SARS outbreak

The world’s third-largest luxury group Gucci on Wednesday reported a 97% slide in first-quarter earnings as a strong euro and the SARS outbreak hit sales of smart bags, fashion goods and perfumes, Reuters reports.

The Dutch-listed firm with Italian roots saw net income tumble to 1.2 million euros ($1.39 million) from 35.5 million euros in the first quarter of the previous financial year. Sector analysts had expected a 22% drop to 27.6 million.

“Simply stated it was the perfect storm: Everything that could have gone wrong did go wrong,” Domenico de Sole, Gucci chief executive, told CNBC, although he spoke of significant improvement in the past two months and said he was quite optimistic about 2004.

De Sole said in the results statement that group performance would improve in the second half of the year and beyond.

Gucci, which has American designer Tom Ford as creative director and counts Yves Saint Laurent, Stella McCartney and Alexander McQueen among its fashion brands, is majority-owned by French retailer Pinault-Printemps-Redoute (PPR).

The results showed the weak dollar depressed the euro value of Gucci sales from the United States, while the deadly Severe Acute Respiratory Syndrome virus hit Asian trade, Reuters reports.

Total revenues fell 6.7 percent to 567.1 million euros. On a divisional level, only the core Gucci operations turned in an operating profit, before goodwill and trademark amortization, of 64.8 million euros, Reuters reports. That was still down almost a third from 93.8 million the previous year.

But losses at Yves Saint Laurent widened and YSL Beaute made a loss against a small profit previously, while losses at other operations increased, Reuters reports.

The Gucci Group also includes Boucheron jewelry and Bottega Veneta shoes. Its fragrances include licenses for Ermenegildo Zegna, Oscar de la Renta, Van Cleef & Arpels and Fendi. Gucci took over YSL in 2002, after the iconoclastic French designer Yves Saint Laurent retired.

Now, the French are poised to bag the Italian group, with upmarket retail group PPR set to take full control in 2004. PPR currently owns 63.7% of Gucci Group.

“We always said we would invest in Gucci for the long term, not for one quarter,” a PPR spokesman in Paris told Reuters. “We are still confident that luxury is a good business to be in and, over time, grows faster than the economy.”

With success in the luxury goods sector increasingly dependent on direct access to consumers via dedicated sales space, PPR’s moves to tighten its grip on the luxury retailer have not gone unnoticed by its rivals.

LVMH Moet Hennessy Louis Vuitton and Richemont, the world’s biggest luxury groups, are both busily rolling out their own store networks.