Pinault defies luxury goods industry slowdown

Investors applauded along with fashion editors yesterday when PPR SA's Bottega Veneta luxury label sent its fall collection down a Milan runway.

PPR's earnings per share will rise more than LVMH Moet Hennessy Louis Vuitton SA, estimates compiled by Bloomberg show. Growth in the luxury-goods industry will slow to 9 percent this year from 13 percent, HSBC forecasts. Deutsche Bank AG has made the Paris-based PPR its top retail and luxury pick for 2008.

Since taking charge in 2005, Chief Executive Officer Francois-Henri Pinault, 45, has sold businesses including YSL Beaute and bought others. Last year's acquisition of Puma AG will lock in two-thirds of profit growth in 2008 as the footwear company hawks design-your-own sneakers. PPR's stock, down 16 percent this year, may rise 67 percent in the next 12 months, MF Global Securities estimates.

"PPR has been very proactive at getting rid of businesses that don't fit their strategy and won't add as much value," said John Guy, an MF Global analyst in London. "It runs a diversified and resilient business that spans the globe," said Guy, who rates the stock "buy".

Pinault, who took over from his father after working in the group for 21 years, sold YSL Beaute, a maker of cosmetics and perfumes, for 1.15 billion euros to L'Oreal last month. That sale will allow PPR to pay down debt and lead to a profit at Yves Saint Laurent for the first time since Pinault's father purchased the brand in 1999, analysts including JPMorgan Chase & Co's Simon Irwin said.

PPR's earnings per share will rise 18 percent this year, compared with about 10 percent for LVMH, the world's largest luxury-goods maker, according to analyst estimates compiled by Bloomberg. PPR's per-share profit dropped 60 percent in 2003, when consumers reined in travel after the SARS virus and the outbreak of the Iraq war.

Concern that a slowdown in US consumer spending may cause a similar effect has intensified since jeweler Tiffany & Co reported lower Christmas sales. LVMH Chairman Bernard Arnault, 58, called the economic outlook "worrisome" at the Paris-based company's 2007 results presentation. PPR gets about a 10th of sales from the United States, while LVMH gets a quarter.

PPR, the world's third-largest luxury-goods maker after Cie Financiere Richemont SA, is better protected now because most of its fashion brands are no longer money losers. Clothiers Balenciaga and Bottega Veneta became profitable in 2005, ahead of schedule. Boucheron and Stella McCartney's UK operations broke into the black in 2006, a year before targets set by Gucci Chief Executive Officer Robert Polet, 53.

Agencies

(China Daily 02/20/2008 page17)