Gucci sales growth sputters as Kering label faces transition

GUCCI sales barely grew in the first quarter as Kering’s biggest luxury brand struggled to win over more shoppers to products such as Double G belts and furry Princetown slippers.

Revenue at Gucci rose 1 per cent on a comparable basis, the company said on Tuesday (Apr 25). Analysts had expected a gain of about 2.7 per cent. Investors pay particular attention to Gucci, the luxury conglomerate’s Italian label, which generated about two-thirds of Kering’s operating profit last year.

“Kering’s performance in the first quarter remained mixed,” chief executive officer Francois-Henri Pinault said in a statement, while citing a “gradual improvement in activity month after month”.

The Paris-based company’s results stand in contrast to the strong performance of rivals LVMH Moet Hennessy Louis Vuitton and Hermes International, which both posted double-digit sales growth in the first quarter. Sales at LVMH, which owns the Christian Dior and Tiffany brands, helped drive a share rally that has made the luxury powerhouse the most valuable company in Europe — and CEO Bernard Arnault the world’s richest person.

Gucci is weathering a transition after naming Sabato De Sarno as its new creative director in January. The Italian designer, who is joining from Valentino, will unveil his first collection in September at Milan Fashion Week. His clothes won’t be available in stores until early next year.

China demand

Kering has seen improving demand from Chinese consumers throughout the first quarter, chief financial officer Jean-Marc Duplaix said on a call. Sales to Chinese shoppers at home and abroad rose by double digits in the period, he said. He added Kering still needs to boost Gucci’s appeal in China and stressed that work being carried out now won’t have an impact “overnight”.

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“We remain constructive on Gucci’s turnaround potential,” Citigroup analyst Thomas Chauvet wrote in a note, adding that Kering’s performance “cannot mirror” that of LVMH’s fashion and leather goods unit or Hermes.

The situation in North America was more “volatile”, with fewer “aspirational” consumers buying Kering products, Duplaix said, adding that all Kering brands had a “challenging” first quarter in the US.

Kering’s comparable revenue in its own retail network, which includes e-commerce sales, slid 18 per cent in North America, while Asia-Pacific grew 10 per cent in the quarter, the company said.

Sales at Kering’s Other Houses unit fell 9 per cent, in line with analysts’ estimates. The drop is partly a consequence of management’s decision to reduce its wholesale distribution for the division, which includes Balenciaga and Alexander McQueen.

Balenciaga is facing a difficult US market, while trends in continental Europe are encouraging, Duplaix said. The brand’s performance has faltered since an ad campaign late last year stirred outrage for featuring young children with teddy bears that appeared to be wearing bondage gear. The negative effects of this controversy will likely completely fade away by the second half, Duplaix said.

Analysts have previously estimated that Balenciaga generated as much as 60 per cent of sales at the Other Houses unit. BLOOMBERG