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Oct 20, 2009
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France's PPR sales miss forecasts, eyes on next quarter

By
Reuters
Published
Oct 20, 2009

PARIS, Oct 20 (Reuters) - French retailer PPR (PRTP.PA), which owns the luxury brand Gucci, said on Tuesday 20 October it would continue to cut costs and boost competitiveness after posting lower third-quarter sales that were slightly below forecasts.



Third-quarter revenue reached 4.56 billion euros ($6.8 billion), a drop of 7.6 percent year-on-year. Analysts had been expecting sales of 4.64 billion euros.

PPR Chief Executive Francois-Henri Pinault blamed the "lacklustre" macroeconomic environment, weak tourism flows and high year-on-year comparisons for the decline.

PPR said in a statement it would pursue previously announced plans to reinforce its competitive edge and market positioning.

"We may see some short-term pullback (in PPR's share price)," said John Guy, an analyst with MF Global in London. "But looking through into the fourth quarter, there is room for optimism that you will see growth year on year."

Guy said the intensification of the global economic downturn in September 2008 led to a deterioration in PPR's performance, which would make the fourth-quarter comparison base easier to beat.

He added that there would be currency headwinds for PPR going into 2010 because of the euro's appreciation against the euro and the yen.

PROTECTING GROSS MARGIN

Chief Financial Officer Jean-Francois Palus said on a conference call that PPR would focus on protecting its gross margin and cost base. He said previous cost-cutting measures had already borne fruit in the first half of this year, with more to come in the second half and in 2010.

"We are confident that the transformation we have carried out during these tougher periods will fully benefit us in better times and as soon as a durable recovery starts occurring, presumably in 2010," he said.

Palus reiterated PPR's intention to spin off auto and pharmaceutical retailer CFAO into a separately listed company, which he said would bolster PPR's financial position.

Gucci brand like-for-like sales fell 6 percent in the third quarter, excluding timepieces, with wholesale orders suffering more than directly operated stores.

Watches and other so-called "hard" luxury goods performed worse than "soft" goods such as leather and accessories.

The Gucci Group, which also includes Bottega Veneta and Yves Saint-Laurent, reported a 10 percent drop in like-for-like sales, to 819 million euros.

Emerging-market sales for Gucci Group rose 10 percent, especially in China, but failed to offset double-digit declines in the United States and Europe.

Palus said Gucci Group was cutting back on capital expenditure as well as other costs, adding that opening a new store now costs 30 percent less per square metre than before.

PPR's sportswear brand, Puma, had like-for-like sales down 9.8 percent.

Nearly all of PPR's non-luxury divisions, including home-improvement chain Conforama and mail-order company Redcats, reported like-for-like sales declines of around 10 percent.

Retail chain Fnac, which sells books, DVDs and records, was an exception with a like-for-like increase of 0.5 percent.

Fnac bucked the sluggish trend due to new e-commerce site Fnac Marketplace and the introduction of product lines such as stationery and second-hand videogames.

Rival LVMH (LVMH.PA) beat consensus expectations with its third-quarter sales of 4.14 billion euros on Monday 19 October. Analysts had forecast 4.13 billion euros. Louis Vuitton is less exposed to wholesale than Gucci.

PPR, which is controlled by the Pinault family, last year began a restructuring and cost-cutting plan to defend its operating margin in the face of falling sales.

It has not given any profit guidance for the year.

Shares of PPR closed up 0.1 percent at 85.17 euros before the statement. ($1=.6678 Euro) (Reporting by Lionel Laurent, editing by Maureen Bavdek) (Tel. +33 1 49 49 56 85 Reuters messaging: [email protected])

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