Why Gains at Gucci Look So Certain

Luxury goods maker Gucci Group (GUC ) is almost sure to produce decent rewards in these tough times. Rumors that CEO Dominico De Sole and Creative Director Tom Ford might quit shouldn't scare off investors. In a year, the stock, now at 94 a share, will surely be worth at least 101.50. Here's why: On Sept. 10, 2001, Pinault-Printemps-Redoute, a French retailer that owned over 40% of Gucci, bought about half of the 20% stake held by rival LVMH Moet Hennessy Louis Vuitton for an undisclosed price, boosting its holdings to 53%. But there was an important condition: Pinault agreed to buy the remaining LVMH stake--and committed to buy all those in public hands--for $101.50 a share by the end of March, 2004. Pinault has been buying shares on the open market, raising its stake to 61%.

Sure, the stock could fall if rumors that De Sole and Ford might bolt gain credence. But to some pros, that's a buying opportunity. Indeed, Pinault CEO Serge Weinberg seems to encourage the rumor. In remarks to the Paris press, he suggested that Gucci has to face the risk of De Sole and Ford leaving. Analyst Jacques-Franck Dossin of Goldman Sachs in London, who rates Gucci outperform, says Pinault recently reiterated a "clear commitment" to buy 100% of Gucci in 2004. Dossin expects Gucci to earn $2.03 a share in 2003 and $2.60 in 2004, vs. 2002's estimated $1.95. Goldman has provided banking services for Gucci.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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