UPDATE 2-PPR's Gucci says trading tougher in China

Thu Oct 25, 2012 2:03pm EDT

* Gucci like-for-like sales up 7 pct

* PPR total like-for-like luxury sales up 12 pct

* Says disposal of Redcats will take several months

By Astrid Wendlandt

PARIS, Oct 25 (Reuters) - Gucci, the Italian fashion brand owned by French group PPR, said trading had become tougher and competition fierce in China's largest cities.

Gucci, the world's No.2 luxury brand behind Louis Vuitton in terms of sales, confirmed a slowdown in the luxury sector as its revenue growth decelerated to 7 percent in the third quarter from 10 percent in the second and 12 percent in the first.

Its performance mirrors slowing growth at other major luxury brands like Burberry and Louis Vuitton in big markets such as Asia.

LVMH's fashion and leather sales, of which Louis Vuitton makes up 75 percent, saw comparable sales growth slow to 5 percent in the third quarter from 8 percent in the second and 12 percent in the previous three months.

PPR's results follow profit warnings by Mulberry and larger British rival Burberry, which have helped cement the view that a three-year boom in the luxury goods market is coming to an end.

China - the luxury sector's main driving force since the financial crisis of 2007/2008 - has been putting a lid on luxury spending in recent months in response to a government crackdown on corruption and conspicuous spending.

In addition, Chinese consumers have been cultivating a new-found appetite for less high-profile, logo-centric brands such as PPR's Balenciaga and Yves Saint Laurent.

"We see that the taste is going for more sophisticated products and the market is tougher but we believe we have the right strategy for Gucci," PPR CFO Jean-Marc Duplaix told analysts on a conference call about China.

"In Tier 1 (most populated) cities, the competition is quite fierce, the more dynamic cities are Tier 2 (less populated)."

Gucci's sales in China, which had enjoyed high double-digit growth in recent years, reached "high single digits" in the third quarter of 2012 but were "above 10 percent" on a nine-month basis, he said, adding he was confident Gucci's margins would improve this year.

PPR's total luxury sales rose 12 percent to 1.593 billion euros ($2.06 billion), and overall group sales grew 6.6 percent to 2.561 billion in the third quarter on a comparable basis.

PPR is the world's third-largest luxury group behind LVMH and Switzerland's Richemont.

REDCATS SALE

PPR, which did not give a precise forecast for the full year other than improved sales and profits, said the disposal of its Redcats mail order unit would take several months and all options remained open.

Duplaix said talks regarding the disposal of Redcats' U.S. operations were well-advanced and discussions regarding its children's and family brands had started.

PPR, which wants to focus on luxury and sports brands, has been looking for buyers for Redcats' children's brand Vertbaudet and family brand Cyrillus as well as U.S. operations and its flagship mail order company La Redoute.

Earlier this month, PPR unveiled plans to spin-off its CDs and books retail chain Fnac in 2013, having failed to find a buyer for the business which has been hammered by music piracy and competition from online retailers.

Duplaix said it would be listed through a distribution of shares to shareholders, with details to be made public in February.

PPR shares, which have gained 20 percent so far this year, closed down 1 percent at 130.9 euros.