UPDATE 3-PPR sees China, Gucci as luxury bright spots
* H1 recurring op income 749 mln euros vs f'cast 730 mln
* PPR Q2 comparable sales growth 8.4 pct vs poll 6 pc
* Gucci recurring operating income 439 mln euros, up 33 pct
* Fnac recurring op profit 1 million euros vs 38 million
* PPR shares up 0.19 percent at 130.1 euros at 1130 GMT
(Recasts, adds shares, CEO comments)
PARIS, July 29 (Reuters) - PPR expects to see more of the strong demand for luxury goods that boosted its first half profits, with Chinese consumers and its Gucci brand in particular driving the trend.
PPR's overall business beat expectations in the first half, but the Fnac retail chain it has put up for sale was hit by a spending slowdown in Western Europe and profits at the unit all but dried up -- limiting any shareholder euphoria. The stock was little changed at midmorning.
"The good news ... is clearly the growth of luxury sales, but Fnac is catastrophic," one Paris-based analyst said, referring to the chain which sells books, CDs and computers and which saw comparable sales drop 3.2 percent in the first half.
Fnac's recurring operating profit collapsed to 1 million euros from 38 million.
PPR will be looking to sell Fnac once it has offloaded its mail order business Redcats as part of its strategy to transform itself into a group focused on luxury and sports apparel.
"We have presented the case (Redcats) to banks which will put together the financing for potential acquirers," PPR Chief Executive Francois-Henri Pinault said a press conference.
Pinault declined to comment on PPR's interest for Italian tailor Brioni for which it would be ready to pay 350 million euros, people close to the talks have told Reuters.
Pinault sees China continuing as a luxury goods demand powerhouse.
"We think that the (luxury) trends will continue (in the second half)," Pinault said. "The assumptions behind that are very strong."
PPR's luxury brands, which include Yves Saint Laurent, Alexander McQueen and Gucci, produced combined sales growth of 24.4 percent in the second quarter, above expectations of 19 percent and first-quarter growth of 22 percent.
In mainland China, PPR's luxury revenue jumped 54 percent in the second quarter alone, while in western Europe luxury revenue rose 19 percent and in North America, there was a 26 percent rise on a like-for-like basis.
"We saw a sharp acceleration in luxury trends. This is an impressive performance ... one of the best in the sector," analysts at Citi said in a note.
Earlier this month, rival Hermes saw second-quarter sales growth of 22 percent on a comparable basis.
Pinault said Gucci's strategy to strengthen its offering of upmarket products, such as bags in exotic skins, which justified higher prices, had started to pay off and the brand would continue to open shops in China and in Brazil this year.
In the first half, Gucci's operating margin reached one of its highest levels in recent history at 30 percent as operating income rose 33 percent on revenues up 21 percent at 1.469 billion euros. The brand generates about 60 percent of PPR's total profits.
YVES SAINT LAURENT
Another good surprise at PPR's luxury division was Yves Saint Laurent, which has been pruning its distribution network and historically produced a mixed bag of results.
The brand which had reached break-even in 2008 and dived back into loss in 2009, made a small first-half profit of 7 million euros on sales of 153 million euros.
Yves Saint Laurent's sales rose 34 percent in the second quarter on a like-for-like basis, driven mainly by leather goods which made up two thirds of sales.
Pinault said Yves Saint Laurent's break even point stood at around 300 million euros of annual sales.
He said Yves Saint Laurent would continue to expand worldwide and open more boutiques in Asia. But he pointed out that if the brand's ready-to-wear sales were buoyant, perfume and cosmetics, run by L'Oreal , were flagging.
PPR's royalties from Yves Saint Laurent perfume and cosmetics were up only 1 percent in the first half, he said.
Overall, PPR's total recurring operating income reached 749 million euros ($1.1 billion) on revenue of 7.22 billion euros for the six months to June 30.
PPR had been expected to produce an operating profit of 730 million euros on first-half sales of 7.12 billion according to a Reuters poll of 10 banks and brokerages.
(Editing by David Cowell and Andrew Callus)
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