Gucci slips into red as sales plunge 7%

The luxury goods company Gucci yesterday blamed a host of factors including the war in Iraq and the Sars virus for a quarter it described as "the most difficult" it had experienced and one in which it slipped into the red.

The company, which recently caused a stir by using adverts featuring a model revealing her "G"-shaped pubic hair, also said the strong euro had taken its toll on profits.

Domenico De Sole, chief executive, said: "The luxury goods industry faced a uniquely challenging environment during the first quarter and particularly in March and April, with the war in Iraq and the outbreak of Sars in Asia having had a devastating impact worldwide. The situation was exacerbated by the strong revaluation of the euro, which cut tourism and tourists' purchasing power in Europe."

The consequent drop in travel and consumer confidence "led to reduced traffic and sales in our stores", he said, adding: "As a result, this quarter was the most difficult we have experienced."

The company reported pre-tax losses of €15.7m (£9.4m) in the first quarter to 30 April compared with profits of €35.6m in the same period a year before. Sales plunged 6.7 per cent to €567.1m.

In a note entitled "Falling apart at the seams?", analysts at Credit Suisse First Boston described the figures as "significantly" below both their own and consensus forecasts.

On a geographic basis for the group as a whole, Europe was particularly hard hit where sales dropped 21.3 per cent after an especially poor performance in France and Italy. In the US sales dropped nearly 12 per cent, while in Hong Kong sales were 9.3 per cent lower.

But while luxury goods groups tend to come under the cosh during tough times as consumers have less to spend, analysts thought Gucci's problems were mainly company-specific.

Gucci, which is also home to both the Stella McCartney and Alexander McQueen brands, said sales of most of its Gucci products were down except for jewellery, which had seen an 18.4 per cent rise.

Sales of Gucci leather goods were 16 per cent lower in the first quarter while there was a near 13 per cent drop in shoe sales and a near 23 per cent fall in sales of watches.

"The strategy to rejuvenate sales through the introduction of cheaper and more logo-heavy products has not worked yet," analysts at Goldman Sachs remarked.

But Mr De Sole insisted that there was some evidence that trading was picking up again. He said the group was seeing double-digit retail sales growth in Asia while sales of Yves Saint Laurent were rebounding.