Gucci blames travel and tourism slowdown for halving in profits

The uncertain political-economic environment and slowdown in tourism has continued to hit Gucci, the luxury goods group.

The company, which is listed in Amsterdam, saw pre-tax profit almost halve in the three months to 30 April, its first financial quarter, shrinking to €35.6m (£22.4m), from €68.4m for the period last year. Gucci, famous for its leather shoes and handbags, sells goods for hundreds or thousands of euros.

In Europe, retail sales of the core Gucci brand were down 6.6 per cent, primarily as a result of the decline in Japanese and American travel and tourism. The US saw retail sales drop 25.7 per cent, also due to continued weak tourism traffic, especially in Hawaii. Consumers tend to purchase the company's products while on holiday.

The figures contrasted with results from the mass market clothing retailer, Hennes & Mauritz, which reported a jump in profits for the three months to the end of May, its second financial quarter, on the back of a strong improvement in US profits and success in its key German market. "This is the best quarter ever in H&M's history, and the comparative quarter last year was not a bad quarter, so we are very satisfied," a company spokesman said.

H&M, the world's largest clothing retailer by market capitalisation, said its pre-tax profit jumped 37 per cent to 2.1bn Swedish kronor (£150m). Its gross margin rose 1.5 percentage points in the quarter to 54.6 per cent. H&M margins are closely watched because it recently shifted strategy to slower sales growth and lower stock levels to boost profitability. However, H&M's high margins could now be near a ceiling as stock levels are at a minimum level.

Analysts at Merrill Lynch said the improving H&M performance was mostly down to efficiency gains and a much improved stock position – a year ago the company had very big US stock provisions.

"The main reason [for the profit rise] is NOT the gross improvement in Q2, albeit at 54.6 per cent, it is better than expected, but rate of cost growth, which appears to have been only 10 per cent in Q2 after 22 per cent in Q1," the broker said.

The benefits of a cost-cutting programme were also apparent at Gucci, where gross margin advanced to 70.1 per cent in its first quarter, from 68.8 per cent in 2001. The group said its Yves Saint Laurent brand continued to perform "spectacularly".

Domenico De Sole, president and chief executive of Gucci, said: "These are trying and uncertain times and consequently we have to be cautious about the rest of the year. However, we have successfully faced uncertainties in the past and we are showing once again our ability to manage through difficult conditions."

The company reaffirmed its guidance for the full 2002 financial year, with expected revenues of €2.7bn.