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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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Geographically, Japan, with a 5.6 percent sales increase, was the only major market registering an uptick.

Meanwhile, profitability at the division suffered as Gucci marked down merchandise to account for slow sales of its spring-summer collection. The company noted it has a “conservative inventory valuation policy.”

Operating profit at the division slid 20.2 percent to $102.7 million, or 24.2 percent of sales, from $128.7 million, or 29.9 percent of sales, the year before.

On the upside, Gucci did note conditions are improving, citing “strong double-digit growth” for constant-currency retail sales in Europe, Japan, Hong Kong and the U.S. since Aug. 1.

As for YSL, revenue for the quarter grew 5.5 percent to $41.6 million, but Gucci said it rose 14.6 percent on a constant-currency basis.

The costs of opening stores and, once again, increased markdowns caused YSL to widen its second-quarter operating loss before goodwill and trademark amortization and restructuring costs to $22.1 million from $15.6 million.

In the meantime, De Sole brushed aside talk that PPR is unhappy to have Ford designing both the Gucci and YSL collections and that the issue has become a sticking point in contract renegotiations.

De Sole said he had picked up on this rumor, but he had not heard such a sentiment from PPR chairman Serge Weinberg.

“I believe Tom Ford is the greatest designer of his generation. He’s done a superb job at both Gucci and YSL, period,” De Sole said.

“We believe in freedom of expression,” he later quipped to analysts on the conference call.

Gucci also provided a rosier outlook for YSL, saying retail sales growth at the French brand is accelerating. It said constant-currency retail sales grew 22.8 percent in the second quarter and were up 31 percent since the end of July.

YSL Beauté saw its revenue rise 1.3 percent to $136 million from $134.2 million, but Gucci said it would have been up 9.5 percent in constant-currency terms.

Expenses linked to new product launches such as Alexander McQueen’s Kingdom fragrance and Ermenegildo Zegna’s Essenza di Zegna caused YSL to widen its operating loss before goodwill and trademark amortization to $21.4 million from $14.2 million.
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