Sales growth eases at Kering’s star Gucci brand

Parvez Jabri July 26, 2019

PARIS: Sales at Gucci rose more slowly than expected in the second quarter, taking the shine off a jump in profit margins at the Italian fashion label which contributes the bulk of revenue and profit at luxury group Kering.

Investors are keeping a close watch on the extent to which it might lose steam after three years of explosive growth following a hit makeover under designer Alessandro Michele.

The brand is at a disadvantage due to a high comparison base, but the slowdown, while expected, comes just as sales growth at rivals including LVMH’s Louis Vuitton and Christian Dior brands leapt ahead of forecasts in the period.

Gucci’s comparable sales expanded by 12.7% in the April to June period, missing expectations for 14% to 15% growth.

A weak performance in the United States, linked partly to a drop in Chinese visitors there, dragged on Gucci’s sales and that of other Kering labels, which include Saint Laurent, the group’s Financial Director Jean-Marc Duplaix said.

“It’s a market that’s becoming more difficult, we’ve seen that for all our brands,” Duplaix told reporters.

The brand is planning more marketing campaigns, including in the United States, in the second half of the year, Kering said.

Executives at the group have said Gucci’s growth still has a long way to run – carried like rivals by booming Chinese demand – and the brand has recently branched out into make-up, homeware and high-end jewellery.

The label is still converting stores to its rococco new look, which has helped boost sales by the square metre in the shops it has already redesigned, and shaken up its product and price mix in recent years.

This has helped drive up margins and operating profitability at Gucci proved a bright spot in the second quarter, reaching 40.6% at the end of June and already exceeding medium-term goals set out a year ago.

DIOR OUTPERFORMING

Kering’s reliance on Gucci and its performance has drawn particular scrutiny at a time when several rivals are upping the ante.

Britain’s Burberry is trying to stage a comeback under new designer Riccardo Tisci.

LVMH’s Dior label, meanwhile, has emerged as one of the industry’s best performing brands so far this year, with sales expanding at a faster clip than LVMH’s overall fashion and handbag unit, the group disclosed on Wednesday. Comparable revenues in that division were up 18% in the first half of 2019.

Overall, Kering reported a 15.9% rise in revenue for the April to June period to 3.85 billion euros ($4.3 billion), up 13.2% on a comparable basis – roughly in line with analyst forecasts and helped by a slight turnaround at its Bottega Veneta label.

Sales at its other brands like Balenciaga and Alexander McQueen, while a lot smaller than Gucci, also beat expectations.

Kering’s recurring operating income exceeded forecasts in the first half of 2019, rising 25.3% to 2.25 billion euros.

Copyright Reuters, 2019

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