PPR shares slide as sales miss casts cloud over luxury sector

Fri Apr 26, 2013 9:35am EDT

* PPR shares down 7 pct, LVMH, Richemont down 1 pct

* PPR was seen as rising star of luxury industry

* Group's fall from grace bodes ill for sector

By Astrid Wendlandt

PARIS, April 26 (Reuters) - PPR's disappointing first-quarter sales have reinforced fears that the luxury goods sector has run out of steam and reached a turning point.

Shares in the French luxury and sports group fell 7 percent on Friday, taking the shine off the rising star of a global industry which boasted average growth rates of more than 10 percent over the past three years.

Looking ahead, the sector is likely to witness increased gyrations and variations depending on the brand, region and time of year, producing a mixed global picture, analysts predicted.

"The luxury goods sector will continue to outperform other markets but the pace of growth is likely to come down because it was not sustainable the way it was growing in the past 2-3 years," said Scilla Huang Sun, who runs the JB Luxury Brands Fund with 320 million euros under management.

Like-for-like sales at PPR's fashion brand Gucci in the first quarter, which rose 12 percent last year, increased only 4 percent in the first three months of 2013, while analysts expected 6 percent growth.

Comparatively, rival Louis Vuitton's sales growth reached 2-3 percent on a like-for-like basis in the first quarter, its lowest performance since 2009, compared with growth of more than 10 percent last year.

PPR's figures weighed on other luxury stocks with industry leader LVMH and the world's second largest luxury group Richemont down nearly 1 percent.

PPR, which published its numbers late on Thursday, echoed LVMH's remarks about depressed consumption and lower tourist flows in Europe and forecast the Chinese market, the biggest engine of growth, was unlikely to improve.

The two group's comments chimed with Swiss watch executives at the Basel watch fair this week indicating that China was undergoing a deeply seated cultural shift that could hold back luxury goods purchases.

Hermes, widely regarded as the most crisis-resistant of all luxury brands, said watch sales fell 5 percent in the first quarter due to weak demand in China and leather goods sales decelerated as well.

Against that trend, Burberry earlier this month posted forecast-beating fourth-quarter results, boosted by its efforts to position the brand in a more upmarket segment and regain momentum in China.

FALL FROM GRACE

PPR, which owns fashion brands Bottega Veneta, Balenciaga and Alexander McQueen, this week bought control of Milanese brand Pomellato in deal welcomed by investors.

But the group's first-quarter miss - PPR's overall like-for-like luxury sales rose 6 percent against expectations of 9-10 percent growth - led several analysts to downgrade earnings forecasts for the year by 2-3 percentage points.

PPR was seen as the rising star of the luxury goods industry after shedding its sluggish retail businesses to refocus on luxury and sports, giving its shares strong growth prospects.

But analysts predicted PPR's fall from grace would weigh on valuation in the near term.

"For the first time in many quarters, PPR's luxury sales disappointed by not outgrowing the sector in spite of having the best portfolio of upcoming brands (together accounting for more than 40 percent of total luxury sales)," HSBC said in a note on Friday.

The group's results also raised concerns about Puma , for which it just hired a new chief executive, as they revealed how seriously affected the sports brand was by the depressed economic environment in Italy and France. (Editing by David Cowell)