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Gucci profits crash to earth

02/07/2003 15:14
"Simply stated it was the perfect storm: Everything that could have gone wrong did go wrong," the firm's chief executive Domenico de Sole told CNBC television.

Mr de Sole listed the strong euro, the outbreak of Sars in Asia and the war in Iraq as the reasons behind the storm, all of which had a severe impact on the shopping habits of the world's wealthy.

Profits plunged from 35.5m euros (£24.6m) in the first three months of 2002 to just 1.2m euros in the same period this year.

Sex sells

Gucci has American designer Tom Ford as creative director and counts Yves Saint Laurent, Stella McCartney and Alexander McQueen among its fashion brands.

But its sales and share price have consistently underperformed its competitors, analysts say.

Gucci is trying to turn around its loss-making Yves Saint Laurent brand, and has turned to increasingly controversial adverts to sell itself.

A notorious advert of a naked Sophie Dahl was eventually banned in the UK, while a Mario Testino picture showing a model pulling down her knickers to reveal Gucci's trademark "G" symbol shaved in her pubic hair caused a similar furore in recent months.

Despite Gucci's efforts, losses at YSL widened to 21.5m euros during the start of the year , while the YSL Beaute subsidiary fell into the red for the first time.

Turnaround time

While the results may seem disastrous, Mr de Sole stressed that business was already picking up and that the firm's full-year results could look much healthier.

Gucci said its new collection of leather goods for the autumn, launched in June, was already helping stop the trend of falling sales.

And it also noted that there was a clear sign of renewed post-Sars shopping in Asia. Gucci sales in Japan are enjoying double-digit growth, the company said.

"The bottom line gives an exaggerated story," said Andrew Gowen, an analyst at Lehman Brothers. Gucci will fare better over the full-year period when cost cutting begins to kick in, he said.

Shares in Pinault-Printemps-Redoute, the French group that owns 64% of Gucci, fell 2.5% after the results announcement.

Gucci shares rose slightly.