Gucci says YSL label will make losses until 2005

Gucci has warned that Yves Saint Laurent, its number two brand, will remain in the red until 2005 because of the deteriorating outlook for the luxury goods market.

The Italian group, which acquired the YSL label in 1999, had hoped the division would break even this year and post a full-year profit in 2004. Domenico de Sole, the chief executive, blamed war jitters and an uncertain economic backdrop for the 12-month delay.

Gucci, with help from its creative director Tom Ford, has turned around the YSL ready-to-wear line by cutting back its licences and reinstating the brand's cachet among fashion's glitterati. The must-have status of certain items such as its Mombassa handbag helped YSL sales to surge 52.3 per cent in the third quarter of 2002.

A spokesman for the group said yesterday: "We feel that, given the current economic circumstances, the first full year of profitability for YSL will be 2005. We are still striving to achieve the 2004 target but, if you look around, you have to be realistic."

Gucci has suffered more than its arch-rival LVMH from the post-11 September slump, last issuing a profits warning in November. A slump in sales at its core Gucci brand, which accounts for two-thirds of total revenues, has left it open to analysts' criticisms that the label is losing the momentum it regained under Mr Ford's guidance in the Nineties.

Aymeric Poulain, an analyst at Merrill Lynch, said: "It is ... a realistic assessment that the road to recovery [at YSL] is likely to be slower than widely expected." He added: "For current forecasts to be held, a recovery in demand is necessary. With sales still under pressure in key markets such as Japan and the United States, we argue that there is a risk of disappointment."

While LVMH's strong hold in the Japanese domestic market has helped to cushion it from the global decline in demand for luxury goods, Gucci's high US exposure has left it more vulnerable, analysts said.

PPR, the French retailer that owns 60 per cent of Gucci, has pledged to buy out other investors in the Italian fashion house in 2004.

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