PPR is not satisfied with the performance of the European footwear business of its Puma brand, and has announced a restructuring program that will generate a charge of up to €100 million for the group in the second half.
In a conference call, PPR's managing director, Jean-François Palu, stressed that the problem is not due to a shortfall in in sales or a problem in brand positioning but it is “above all a cost issue.” The group is taking immediate measures to reduce its cost base, especially in Europe (see article in Sporting Goods Intelligence Europe, Vol. 23, No. 32+33, for more details). The issue will take several quarters to correct.
In the meantime, PPR's luxury division increased second-quarter sales by 32.4 percent to €1.467 billion supported by growth in all regions and a larger retail network.
Comparable revenues rose by 17.4 percent, thanks to growth in all regions. Revenues were up by 12.0 percent in Western Europe, by 22.0 percent in North America, by 11.0 percent in Japan, by 17.0 percent in Asia-Pacific and by 49.0 percent in other countries. Sales were supported by sharp increases in fashion and leather products. The division's sales were up by nearly 21 percent in Greater China but Asian sales were affected by Gucci's policy of repositioning itself in South Korea and Taiwan, which led to the loss of sales in some entry-price products.
Gucci bolstered sales by 19.3 percent to €879.9 million, while comparable sales were up by 10.0 percent. Comparable sales rose by 2.0 percent in Western Europe, by 19.0 percent in North America, by 8.0 percent in Japan, by 7.0 percent in Asia-Pacific and by 71.0 percent in other countries.
The group stressed that North American sales were supported by a growing contribution from tourists coming from South America and China. Likewise, strong sales in France and the U.K. and other Western European stores were underpinned by tourists. But in Italy sales fell by a single-digit rate as purchases by foreigners did not fully offset a drop in buying by local consumers.
Gucci had 403 directly operated stores at the end of June compared with 390 at the end of March. Comparable retail sales were up by 13 percent in the quarter.
The brand continued to rationalize its wholesale channel, especially in Italy, to increase control on distribution. In South Korea and Taiwan the group is focusing on scaling up Gucci to attract high spenders and align the brand with its position in other markets. PPR expects the Korean market to start improving sales in the second half of the year. PPR said that it was satisfied with the results of the review and does not expect further action in the near term. The label has opened 27 stores since the beginning of the year and reiterated its target of about 50 openings for the whole of 2012.
Bottega Veneta's sales surged by 50.2 percent to €211.5 million, while comparable sales were up by 37.4 percent thanks to double-digit growth in all geographies and leathergoods sales were up nearly 40 percent. The label had 180 DOS at the end of the quarter compared with 171 at the end of March.
Yves Saint Laurent bolstered sales by 49.5 percent to €114.0 million in the second quarter. On a constant basis, turnover rose by 42.1 percent, led by Asia-Pacific up by 78.0 percent, and double-digit sales in leathergoods, shoes and men's ready-to-wear. The brand had 89 DOS compared with 86 three months earlier.
The group's other luxury brands increased sales by 70.7 percent to €260.5 million, sustained by strong growth across all regions as well as the acquisition of Brioni in January 2011. Comparable sales were up by 21.3 percent. The number of DOS reached 224 at the end of June compared with 216 at the end of March.
In the first half, the luxury division booked sales of €2.925 billion, up by 30.7 percent on a reported basis and 17.6 percent on a constant basis. The division's Ebitda rose by 28.5 percent to €823.0 million, representing an Ebitda margin of 28.2 percent thanks to improved profitability at the main luxury brands. Recurring operating income grew by 30.4 percent to €727.0 million, totaling 24.9 percent of sales. Capital expenditure for the division increased by 152.5 percent to €113.0 million in the first half.
PPR's overall revenues from continuing operations, which excludes the retailer Redcats, rose by a reported 16.7 percent to €6.387 billion in the first half. Group recurring operating profits were up by 20.4 percent to €815.0 million and net profits on continuing operations rose by 25.1 percent to 542.0 million.
The group confirmed that it is pursuing talks to sell Redcats and that it is in no rush to complete a transaction. It added that the announced sale of its stake in CFAO would be used to reduce the group's debt. Last month, the Japanese trading house Toyota Tsusho Corporation (TTC) reached an agreement to buy a 29.8 percent stake in CFAO, a company specializing in the distribution of cars and pharmaceuticals in Africa, from PPR.
At the end of June, PPR had a net debt of €4.48 billion. The group expects to book sustained growth in second-half revenues and finish the year with improved financial results.