PPR Profit Rises as Asian Demand Offsets Gucci in North America

PPR SA, the owner of Bottega Veneta and Fnac retail chain, said first-half profit surged 87 percent as demand for clothing and accessories in Asia offset faltering wholesale revenue at the Gucci brand in North America.

Profit from continuing operations advanced to 407 million euros ($531.8 million) from 217.9 million euros a year earlier, PPR said in a statement. Net income more than doubled to 402.8 million euros after PPR spun off a unit. That beat the 327.5 million-euro average estimate of analysts surveyed by Bloomberg.

The first-half results were a “blowout,” Simon Irwin, an analyst at Liberum Capital in London, wrote today in a note. Irwin recommends buying the stock.

Demand for luxury goods is returning as Chinese shoppers increase discretionary spending and retailers replenish inventories after the recession. Second-quarter sales at PPR’s luxury unit Gucci Group NV climbed 18 percent, trailing larger rivals. Both Burberry Group Plc and Hermes International SCA reported a 27 percent increase in the period ended June 30 and LVMH Moet Hennessy Louis Vuitton SA’s sales rose 22 percent.

Paris-based PPR aims to focus on Gucci Group and sporting-goods maker Puma AG, which are more profitable than other assets and have better growth prospects outside Europe, PPR Chief Executive Francois-Henri Pinault said in May. The plan may include selling Fnac, mail-order retailer Redcats and the Conforama furniture chain, and making acquisitions, Pinault said at the time. Puma shares fell 6.1 percent yesterday after the company’s quarterly profit missed estimates. PPR owns 71 percent of Puma.


“PPR has shrugged off yesterday’s weak Puma figures to beat market expectations convincingly,” in the first half, said Tony Shiret, an analyst at Credit Suisse in London. Still, Puma’s results “question the declared aim of establishing a second main division focused on premium consumer goods.”

Gucci saw a “considerable fall” in first-half North American wholesale revenue, PPR’s Chief Financial Officer Jean-Francois Palus said at a meeting today. The first-half sales were not satisfactory, he said. The Gucci brand is more exposed to wholesale than others, meaning it has less control over its sales, according to Sanford C. Bernstein analyst Luca Solca.

PPR rose as much as 1.65 euros, or 1.6 percent, to 104 euros and traded down 1.2 percent at 101.15 euros as of 11:02 a.m. in Paris trading. The stock has gained 20 percent this year, giving the maker of Boucheron jewelry and Sergio Rossi shoes a market value of about 12.8 billion euros.

‘Above Expectations’

“After a 54 percent rise in the last 12 months, some investors could take profits today even though the results are above expectations,” Aurelie Husson Dumoutier, an analyst at Socete Generale in Paris, wrote today in a note. She recommends buying the stock.

First-half recurring operating profit as a percentage of sales widened to 8.7 percent from 7.5 percent, as each of the company’s businesses posted higher operating income in the period, PPR said.

Sales increased 3.6 percent at Fnac and 10 percent at Conforama, France’s second-largest furniture store chain, PPR said. Conforama will be “significantly” more profitable this year and may make acquisitions in new markets such as Turkey, Chief Executive Officer Thierry Guibert said in a June 30 interview.

Total first-half sales on the same basis climbed 3.6 percent to 8.14 billion euros. PPR in December spun off its African distribution unit CFAO.

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