Fashion’s Big Question: De Sole Hopes Contract Will Be Settled by Nov. 1

Gucci contract news could come in a few weeks, as the firm posted a 47 percent drop in 2nd-quarter profits along with a 1.1 percent uptick in sales.

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Sales, in line with analyst expectations, were relatively stable, rising 1.1 percent to $684.5 million from $676.8 million. On the call, De Sole specified sales for the quarter were up 2.2 percent on a constant currency basis. Gucci said retail sales for the group have “surged” since Aug. 1.

Dollar figures have been converted from the euro at current exchange. In local currency, second-quarter net profit came in at 22.7 million euros while sales were 583.7 million euros.

“There was an improvement in the month of July as the collection hit the store,” De Sole said, noting strong demand for fall merchandise. “The problems that were here have disappeared, meaning the war and SARS.”

Gucci’s bullish outlook for the second half of the year echoes comments made Tuesday by two other European luxury powerhouse firms, LVMH Moët Hennessy Louis Vuitton and Burberry, as they released financial results. PPR releases its third-quarter sales today.

Paola Durante, an analyst with Merrill Lynch, said the market is focused on the company’s outlook for the rest of the year. “What the investors are really paying attention to is the extreme confidence that management has expressed for the third quarter,” she said.

Jacques-Franck Dossin, an analyst with Goldman Sachs, also expressed a positive view for the future.

“We knew that the spring-summer collection wasn’t successful, but now it seems that they’ve designed the right product and the right collection at the right price point that is easily identifiable with the brand,” he said. “I am confident about [Gucci’s] autumn-winter and spring-summer ’04 collections.”

Still, De Sole said critical challenges remain. The tourism flow, particularly to France and Italy, “is not as strong as a year ago.” A high euro-to-dollar exchange rate hurts firms like Gucci with developed overseas businesses, although he said the strength of the yen against the dollar partially compensates for that in markets such as Hawaii.

Gucci also has plenty of costly work ahead of itself in turning around the brands it’s amassed in recent years. In particular, De Sole said the company is scaling back on expansion plans for Boucheron, a jewelry brand with extremely high prices and little name recognition outside Europe.
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