PPR Chief Pinault to Run Luxury Unit as Profit Rises
PPR SA, the French owner of Gucci and online retailer Redcats, said Chief Executive Officer Francois-Henri Pinault will take control of its luxury division after the unit helped 2010 profit beat analysts’ estimates.
Net income rose to 964.5 million euros ($1.3 billion) from 950.9 million euros, Paris-based PPR said today in a statement. Profit exceeded the 933.4 million-euro average of nine analyst estimates compiled by Bloomberg. Earnings before interest and taxes, excluding one-time items and figures from divisions that were sold, rose 24 percent to 1.53 billion euros.
Pinault will run the Gucci Group luxury division directly when Robert Polet, currently head of the unit, leaves the company March 1, PPR said in a separate statement. Gucci Group Chief Operating Officer Alexis Babeau will become the division’s deputy CEO. Each of the unit’s brands, which also include Yves Saint Laurent and Bottega Veneta, will retain autonomy under its respective CEO and creative director, the company said.
“There was very little within the numbers that wasn’t a little bit better than expected,” said Simon Irwin, an analyst at Liberum Capital Ltd. in London. “We thought Robert Polet would leave at some stage, so whether it’s now, or a year ago, or a year’s time, doesn’t make an enormous difference.” Irwin recommends buying the stock.
PPR rose 2.2 percent to 115.85 euros in Paris trading today. That pared the stock’s decline this year to 2.7 percent, valuing the company at 14.7 billion euros.
PPR is reorganizing around luxury goods and sports and lifestyle brands. After spinning off African distribution unit CFAO in December 2009, PPR agreed on Jan. 31 to sell furniture retailer Conforama to Steinhoff International Holdings Ltd. for 1.21 billion euros. PPR plans also to dispose of Redcats and the Fnac retail chain.
Though the environment for disposals is “much better” than before, any transactions will depend on potential buyers’ financing abilities, Pinault said today at a presentation in Paris. PPR will try to get the “highest price possible” for the assets, the CEO said.
PPR is in a “healthy” position to buy companies and is looking at “many” opportunities, particularly in the sports and lifestyle segment, Pinault said. Even so, PPR isn’t dependent on acquisitions for growth and will focus on boosting sales at existing brands, the CEO said.
Any takeovers will depend on a number of factors, including a target’s willingness to sell, he said. No purchase will exceed the 5.3 billion euros that PPR paid for two-thirds of sporting- goods maker Puma AG in 2007, Pinault said.
“Robust revenue growth” is expected in 2011, the company said. PPR will “deliver a better financial performance than in 2010” as Latin American and Asian shoppers spend more on luxury at home and overseas, Pinault said.
U.S. sales by the Gucci brand, which were affected by a drop in wholesale revenue in the first half of 2010, have been “very good” this year, Chief Financial Officer Jean-Francois Palus said. The brand’s sales this year in China are “extremely encouraging,” Palus said.
Gucci Group will increase capital expenditure by a “double-digit” percentage in 2011 as it opens more stores, particularly in Asia and Brazil, Palus said. The unit will open about the same number of stores this year as it did in 2010, Pinault said.
The luxury division will raise prices this year, Pinault said. Redcats will also increase prices because of rising cotton costs, said Jean-Michel Noir, CEO of the unit.
PPR’s full-year sales increased 7.5 percent to 14.6 billion euros, propelled by a 23 percent increase in fourth-quarter revenue at Gucci Group. The operating margin at divisions PPR still owns widened to 10.5 percent from 9.1 percent. Net income from discontinued or sold operations was 200 million euros, the company said. The company plans to raise the dividend by 6.1 percent to 3.50 euros a share.
Fourth-quarter revenue, excluding Conforama and following a restatement at Puma because of “fraud and irregularities” at a joint venture in Greece, climbed 9.6 percent to 4.25 billion euros, PPR said.
Revenue at Gucci Group rose to 1.15 billion euros in the quarter, PPR said. Sales climbed 23 percent at the Gucci brand, 40 percent at Bottega Veneta and 24 percent at Yves Saint Laurent. Fourth-quarter sales rose 0.1 percent at Fnac, 2.2 percent at Redcats and 28 percent at Puma, PPR said.
As part of the reorganization, Puma Chairman Jochen Zeitz will relocate to Paris, Pinault said. Separately, Yves Saint Laurent CEO Valerie Hermann will step down and be replaced by Paul Deneve, a former executive at French fashion house Lanvin, Pinault said. Hermann has decided to take up a new opportunity in the U.S. which will be announced tomorrow, PPR spokeswoman Charlotte Judet said by e-mail, declining to comment further.
Polet said at the presentation that he’s weighing several options and is ruling out retiring.
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