Shoes and leathergoods were among the star performers within the Gucci Group in the 3rd quarter ended Oct. 31, which showed better than expected results that confirm the likelihood of a turnaround in the luxury goods sector. The group’s total revenues grew by 12.8 percent in local currencies, and its performance in the important 4th quarter was described as outstanding.
In the Gucci division, sales in euros of footwear were up by 7.4 percent to €44.7 million in the 3rd quarter and those of leathergoods increased by 7.8 percent to €170.3 million, but the growth rate in constant currencies was nearly double as high at 17.6 and 15.5 percent, respectively. At Yves Saint Laurent, sales of shoes and leathergoods advanced by 41.8 and 37.8 percent, respectively. Another division of the group, Sergio Rossi, saw sales at its directly operated stores go up by 17.1 percent in constant currencies, with increases of 44.3 percent in Japan and 65.8 percent in the USA.
Sales of Gucci branded apparel were not particularly strong, but a spectacular Fall collection and the iconic Chain horse-bit handbag drew traffic into Gucci stores and helped the division’s retail sales to grow by 12.0 percent in local currencies, with an acceleration to a 21.6 percent growth rate in the critical Dec. 1-14 period. Sales declined during the 3rd quarter in Italy, where local customer and tourist demand were weak until the end of October, but Gucci stores in the rest of Europe recorded a 21.7 percent increase, led by a 45.8 percent jump in the UK. Italy enjoyed double-digit growth from Nov. 1 onwards.
Elsewhere, Gucci’s retail sales in the USA and Japan rose by 20.4 and by 10.7 percent, respectively. An overall 8.1 percent increase was recorded in other Asian countries, but with gains of 12.4 percent in Hong Kong, 13.8 percent in South Korea, 21.4 percent in Taiwan and 38.6 percent in China, where the group is investing heavily on new stores. On the other hand, Gucci’s wholesale business was largely flat, mainly due to conservative orders from department and specialty stores during the 1st half of 2003, but strong sell-out of the Fall/Winter collections have led to a 19 percent increase in wholesale orders for Spring merchandise as compared to a year ago.
In spite of a higher level of full-price sales, the gross margin of the Gucci division dropped slightly to 69.8 percent in the quarter as sales in euros increased by only 4.9 percent to €373.1 million. The group continued to spend heavily on communication, or nearly 6 percent of sales, but a decline in other operating expenses led to an improvement in the operating margin before goodwill amortization to 27.1 percent from the year-ago level of 25.5 percent.
Excluding its fragrances, which continue to generate high profits, YSL raised its sales by 13.6 percent in euros to €43.1 million, with a 27.3 percent gain for its retail sales in constant currencies, driven by an exceptionally strong performance in the USA, Japan and the rest of Asia. Bottega Veneta achieved a 51.5 percent increase in constant currency retail sales, with big scores in the same markets. Alexander McQueen and Stella McCartney did 20.8 and 65.5 percent better, respectively.
However, continued strong investments on the YSL brand, particularly outside France and Italy where it’s less known, led the division to post a higher operating loss of €20.7 million, equal to nearly half of its turnover. The other new brands cut their operating losses by 21.6 percent.
In euros, total group sales improved by 7.8 percent to €695.0 million in the quarter. Operating income before goodwill and restructuring charges increased by 17.0 percent to €90.9 million. However, net financial income dropped by €19.7 million, following the group’s recent decision to distribute a super-dividend of €1.35 billion to its shareholders. Thus, the group ended up with pre-tax profit of €61.8 million, down from €67.1 million in the year-ago period. Net profit was practically stable at €53.1 million.