News flashes have been coming in today from investment analysts covering PPR, which reported its 1Q08 results earlier today. The news is not good for the Gucci brand, but Bottega Veneta has managed to beat market expectations, even in this downbeat economic environment.
Gucci sales only increased by 2.4% to €513m, versus market expectations in the neighbourhood of 7% growth. As a result, some analysts are considering posting downgrades to their ratings on the PPR stock. Given it’s self-stated positioning as an ‘Aspirational luxury’ brand, it may not seem surprising that Gucci would be one of the first brands to show signs of the economic slowdown.
But that’s not the whole story.
Interestingly, the slowdown in sales growth is not coming from the US market, but rather from Japan and Europe. This is more complex than it seems, however, because the US numbers may have been boosted by increased international tourism (as a result of the low US dollar), while the Italian numbers may have decreased due to lower tourism from Japan, which in the past has been a key driver of sales in Italy.
Here’s what the analysts are saying:
PPR: 1Q08 sales highlighted by big miss at Gucci – Buy rating under review: By region, the weak areas were Japan and rather surprisingly Europe, both of which were negative in comparable terms. We believe Gucci is losing market share in Japan, where the luxury market overall is in decline, which is exacerbating the impact vs the likes of Louis Vuitton or Hermes, for example. We are reviewing our rating and look forward to further feedback on the conference call this afternoon before coming to any conclusions – Lisa Rachal, Redburn Partners
PPR: 1Q08 Results: Loss of Altitude at Gucci: The key point of this update seems to be slower growth at the Gucci brand. We believe that weaker than expected performance could be driven by a number of factors, including softer performance in the US wholesale channel, relatively lower exposure to emerging markets than rivals such as LVMH, as well as continued weakness in Japan. - Luca Solca, Sanford C. Bernstein & Co.
There was also some good news, however, for the PPR luxury division. Bottega Veneta is on a tear, with sales jumping 31.5%, beating most analyst expectations. YSL also fared well with +20% growth, despite a tough comparable.