PPR Sees ‘Very Strong Yearning’ for Luxury Goods, Echoing LVMH

PPR SA, the French owner of the Gucci brand and online fashion retailer Redcats, said a “very strong yearning” for luxury goods, particularly in Asia, should help it achieve better results this year than last.

“I don’t see any reason why we cannot sustain the trends in that part of the world,” PPR Chief Executive Officer Francois-Henri Pinault said today at a presentation of the company’s half-yearly results in Paris.

Sales at the company’s luxury division rose 23 percent in the first half, boosted by a surge in demand in China for its Gucci and Bottega Veneta lines. Demand in Europe and North America is being fed by Asian and Latin American tourism, respectively, Pinault said.

Pinault joins larger rival LVMH Moet Hennessy Louis Vuitton SA in predicting sustained demand for luxury products this year, even as stock markets slump. Hermes International SCA last week raised its target for annual revenue growth to as much as 14 percent at constant rates of exchange.

PPR shares were little changed at 130.30 euros at 12:55 p.m. in Paris trading.

‘Sharp Acceleration’

At PPR, there was a “sharp acceleration in luxury trends, one of the best performance in the sector” said Thomas Chauvet, an analyst at Citigroup. “Significantly, the high-margin brands of Gucci and Bottega Veneta performed well.”

First-half net income climbed to 450 million euros ($645 million) from 388 million euros a year earlier, the Paris-based company said today in a statement. The average estimate of seven analysts compiled by Bloomberg was 438.7 million euros.

All of PPR’s luxury brands are profitable, though there was a slight deterioration at Alexander McQueen because of costs tied to the McQ line, Pinault said.

Yves Saint Laurent posted first-half recurring operating income of 6.6 million euros, compared to a loss of 6.4 million euros a year earlier. The “sharp increase” in profit was driven by couture, PPR said. Leather goods and shoes accounted for 66 percent of Yves Saint Laurent sales, excluding royalties, at the end of June, the company said.

Full-Year Confidence

First-half sales from continuing operations climbed 7.3 percent to 7.22 billion euros, PPR said. Bottega Veneta sales advanced 29 percent in the first half, while Gucci rose 21 percent. Sales at the Fnac electronics and media chain dropped 2.7 percent, while Redcats posted a 1.3 percent decline.

“I am confident that in the second half of the year we will be able to deliver sustained revenue growth and achieve a higher full-year financial performance than in 2010,” Pinault said. The company will probably increase prices across the luxury division as it rolls out new collections, he said.

Redcats Divestment

The French company has started work on the sale of Redcats as it reorganizes to focus on luxury goods, as well as sports and lifestyle brands. PPR has briefed banks to put in place a so-called staple financing, Chief Financial Officer Jean-Francois Palus confirmed today. The process, which is similar to that used in the March sale of furniture retailer Conforama, is “proceeding,” he said.

PPR, which agreed to purchase Volcom Inc. this year to expand in skateboarding gear, is focused on organic growth, Palus said, declining to comment on reports in Italy that the French company has made an offer to buy luxury suitmaker Brioni Roman Style SpA.

Volcom’s integration is going “exceptionally well” and PPR has already identified synergies with sporting-goods maker Puma SE, which the French company controls, said Puma Chairman Jochen Zeitz. Volcom is “poised for growth,” he said. Puma sales advanced 11 percent in the first half.

PPR hopes to “overperform” Puma’s plan to lift sales to 4 billion euros by 2015, Pinault said. Full-year revenue is likely to meet a 3 billion-euro target, Herzogenaurach, Germany-based Puma said this week.

PPR’s recurring operating income was 749 million euros, higher than the 733 million euros estimated by Chauvet.

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