Gucci Profit Seen Down, Focus on Core

The world's third biggest luxury goods group Gucci is due to suffer more erosion in full-year profits next week, hit by a soft economy and war fears, but investors hope for an upturn in the core business, analysts said.

Results will also be poured over for details about loss-making Yves Saint Laurent (YSL) after Gucci delayed the break-even target last month for its French design house.

Investors have been braced for weak figures after Gucci, also home to British designer Alexander McQueen, issued a profit warning in December due to a downturn in sales ahead of the key Christmas season.

On Thursday, the sector was hit with more gloom when Swiss Richemont (RIFZ.VX), number two in the sector after market leader LVMH (Paris:LVMH.PA - News), warned of a likely drop of up to 40 percent in full-year operating profit.

Luxury firms have been suffering from global economic weakness and uncertainty ahead of the war in Iraq, expected to cause high-spending tourists to curtail travel plans.

Diluted earnings per share are due to slide 33 percent to 2.08 euros when figures for Gucci's fiscal year ending January 31 are released on Thursday, a Reuters survey of eight analysts shows.

CORE DIVISION

Sales in the Gucci division, famed for handcrafted handbags and loafers, are expected to fall by 9.4 percent, much worse than the one percent loss seen in group sales.

Analysts say the division, which accounts for two-thirds of group turnover, has lost sales to rivals such as LVMH's Louis Vuitton, but were hopeful the fourth quarter had shown an improvement.

"We think they were trying to go too upmarket in their leather goods. It is something that they supposedly addressed so we would expect an improvement to be reflected in their trading statement," an analyst in London said.

Another analyst, however, said the Gucci division's weakness was due to its placement within the sector.

"I find it unsurprising that it has underperformed -- the number one brands in a segment in difficult times will always beat the number two and number three brands. The stronger your brand, the better you do in difficult times."

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