biz.yahoo.com
Wednesday December 3, 6:16 pm Eastern Time
FOCUS-Gucci sees Q4 sales in line with Q3
(Adding analyst comment)
By Jennifer Clark
MILAN, Dec 3 (Reuters) - Gucci Group N.V. (GCCI.AS) (NYSE:GUC - news), the Italian maker of luxury bags and shoes, said again on Wednesday that it expected the financial crisis in Asia to crimp sales growth during the fourth quarter.
''The short term outlook for Gucci is difficult for factors that the company can't control -- namely Asian turmoil and the weaker yen,'' said Andrea Ruggieri, an analyst at Goldman Sachs in London. ''But the company itself is sound, and management is doing the right things to weather the storm.''
Analysts who spoke with Guccci management on a conference call Wednesday afternoon said CEO and Chairman Domenico De Sole was prudent about making earnings forecasts for 1998, they told Reuters.
But analysts came away from the call with the impression that management is taking necessary steps to protect the brand's name and quality.
''I'm encouraged by the fact that they have closed some of their big wholesale outlets and duty free shops,'' said Paul Gordon, an analyst at IMI-Sigeco in Milan. ''They are clearly aiming to keep their brand prestige high. The company is prepared to do things like not raise prices or cut quality that hurts its short-term profit outlook but protects their brand long-term.''
Shares were 1.00 lower at 75.40 on the Amsterdam bourse at 1800 GMT. They were also lower in New York.
Gucci is one of several European luxury goods producers that is scrambling to re-cast its strategy as Far East Asia's booming economies stumble in the wake of currency devaluation, bank failures and expectations of slower growth.
''As previously reported, we anticipate that the Asian economic situation will impact on fourth quarter performance, resulting in overall revenues similar to the third quarter of this year,'' Gucci said in a statement.
Gucci said that sales in key markets of Hawaii and Hong Kong have been affected by ''the macroeconomic factors that have penalized the luxury goods business in general.''
With the Japanese yen at its lowest against the dollar since 1992, Japanese shoppers are less keen to travel to Hawaii and Hong Kong to spend dollars.
Gucci forecast that declining wholesale revenues would be offset by incremental revenues from its newly acquired watch business.
''The watches acquisition was made at a good price and will help boost profitabilty in 1998,'' said Paul Gordon, an analyst with IMI-Sigeco in Milan.
De Sole told analysts that the company had no intention of changing its plans to open 18 new stores between now and the end of 1998, bringing the total of shops up to 100. De Sole said that the weaker yen and other Far East Asian currencies means that the company's costs in those areas will be lower.
Gucci said total net revenues, including royalties, increased 4.2 percent to $239.9 million in the third quarter from $230.2 million recorded in the third quarter of fiscal 1996.
Third quarter gross profit was $149.5 million, or 62.3 percent of revenues, compared to a 1996 gross profit of $149.4 million for the third quarter.
That's a far cry from just a year ago, when Gucci was a stock market darling in New York and Amsterdam praised by analysts for executing one of Europe's most stunning corporate turnarounds. Gucci's net profits for the 12 months to end-January 1997 nearly doubled to $168.4 million, and sales soared by 76 percent to $880.7 million.
Founded by Guccio Gucci in 1923, the company underwent serious problems in the late 1970s and 1980s as a third generation of Gucci cousins quarelled among themselves. Bahrain-based Investcorp bought up Gucci in two steps in 1989 and 1993 and turned the company rapidly around by gaining more control of its distribution and installing a new designer, Tom Ford.
Gucci's shares began to tumble mid-year when it became apparent that a weaker yen would hurt profits. Several brokerages downgraded the stock. On September 24, the company warned investors it would have ''restricted'' growth in the second half of this year. |
