Gucci feeling pinch from economic jitters

By Sara Gay Forden
Bloomberg News Service

AMSTERDAM — Gucci Group NV said second-quarter profit fell 55 percent as sales of its signature products slowed. A possible war in Iraq puts the full-year forecast at risk, chief executive officer Domenico De Sole said in an interview.

Net income fell to 42.8 million euros ($42 million), or 41 cents a share, in the three months ended July 31, from 95.4 million euros, or 94 cents, a year earlier.

The threat of war is the biggest risk to the industry on the horizon, De Sole said. After the Gulf War started in 1991, demand for luxury goods stalled for more than a year as tourist and business travel slumped, analysts said. The sharpest decline would come from Japanese tourists, who have accounted for an estimated 30 percent of global luxury sales.

"I remember what happened to our industry during the Gulf War. Travel just stopped," De Sole said. "The second question mark is the stock market."

The luxury goods sector is also hurt by consumers who have cut back spending amid falling equity markets, slowing economies and firings. Prada reported earlier this month that operating profit tumbled 49 percent in the first half compared with a 57 percent drop for Gucci in the half.

Gucci cut operating expenses at the Gucci brand division by 15.5 percent to bolster profitability as sales fell 14.2 percent in the second quarter. The company said the decline was due primarily to a "significant drop" in tourism to Europe from the United States and Japan.

Sales of leather goods and shoes for the brand known for its double-G logo both fell 16 percent, while watch sales slumped 20.5 percent. Gucci said it cut operating expenses by 15.5 percent to 152.8 million from 180.9 million.