The Gucci Group said today that its first-quarter earnings plunged 97 percent as the company suffered through the effects of the war in Iraq, an epidemic in Asia and a strengthening euro.
Much of the shopping at Gucci’s biggest stores around the world is done by tourists who tend to spend more when they are on vacation. But fears of terrorism and severe acute respiratory syndrome kept many tourists at home this spring. Fewer travelers also meant lower sales at Gucci’s duty-free shops in airports.
And with consumer confidence sagging, Gucci and its rivals are struggling to persuade shoppers to spend hundreds and sometimes thousands of dollars for their shoes and bags.
”They had many things working against them in the quarter, and there was not much more they could have done,” said Patrizio Pazzaglia, the head of asset management in Italy for Bank Insinger de Beaufort, a Dutch bank. ”We will see the same story repeated when other luxury-goods companies report in the coming weeks.”
Gucci earned 1.2 million euros ($1.4 million) in the three months ended April 30, compared with 35.5 million euros in the same period last year. Revenue declined about 7 percent, and the company reported its first operating loss since it first sold shares to the public eight years ago.
The strength of the euro, which has risen about 15 percent this year against the dollar, also hurt Gucci’s results. The Italian company, which is registered in the Netherlands, has less profit when it converts earnings made in dollars, yen and other currencies into euros.
In addition to selling clothing, shoes, jewelry and bags under its own name, Gucci owns the Yves Saint Laurent, Stella McCartney, Alexander McQueen and Bottega Veneta brands. The French retailer Pinault-Printemps-Redoute owns a majority of Gucci’s shares and has agreed to buy the remaining 36 percent by the end of next year.
In an interview with Reuters, the chief executive of Gucci, Domenico de Sole, called the combination of factors that hurt tourism and the economy a ”perfect storm.”
But he was upbeat about the rest of the year, saying there were indications that the current quarter would be ”dramatically different” from the first quarter. ”I expect a significant improvement,” he told Reuters. ”The only areas that remain soft are Italy and France, because tourism is not back.”
American depository shares of Gucci rose 61 cents today, to $98.71, on the New York Stock Exchange. When the world’s $60 billion luxury-goods industry does make a comeback – and some analysts say that might not happen until at least the beginning of next year – and when Americans and Japanese again visit Europe in droves, Gucci will be in a good position to benefit, Mr. Pazzaglia of Bank Insinger de Beaufort said.
”Gucci is hurting now because of a lot of factors outside of its control, but it remains a brand with worldwide recognition that people are willing to pay a premium for,” he said.
Photo: A Gucci store in London. Yesterday Gucci reported its first operating loss since it began selling shares to the public eight years ago.
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