Kering cautious on China rebound after coronavirus hits Gucci sales

[MILAN] Gucci sales were hit hard early in the coronavirus crisis due to the fashion group's reliance on Chinese customers, owner Kering said on Tuesday, adding that it was premature to say how quickly China sales would rebound.

The health crisis first hit China - a major market for high-end goods - late last year before spreading elsewhere, and several European countries, including Italy and France as well as the United States, have since gone into lockdown to try to cope.

Kering sales fell 15.4 per cent to 3.2 billion euros (S$5 billion) in the first quarter, impacted, like its rivals, by store closures and also by the shutdown of production sites in Europe. That was a 16.4 per cent drop like-for-like, which strips out the effect of acquisitions and currency swings.

At its star Gucci label, which powers most of its profits, like-for-like sales were down 23.2 per cent in the period, contrasting with a less pronounced 13.8 per cent drop-off at Kering's Saint Laurent brand.

Kering financial chief Jean-Marc Duplaix said the sales outlook was improving for mainland China as shops reopen, a bright spot for luxury brands hoping to cushion some the impact of the spread of the virus outside Asia.

"From the start of April, we've seen an improvement and positive trends for most of our brands in mainland China," Mr Duplaix told reporters. He said Gucci - which earns 37 per cent of its revenues in Asia excluding Japan - was leading the pack.

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But he said it was too early to draw any conclusions about how solid the rebound was, given some stores had only reopened at the end of March and restrictions remained in place in the capital Beijing.

"We have to be very cautious as in some cases we have only around 15 days behind us to examine the trend."

Business in Hong Kong, where months of protests depressed sales in 2019, was "extremely disrupted" by the halt in tourist flows.

Mr Duplaix also said that with most western countries under lockdown until May he did not expect any meaningful recovery in Europe or the United States to take hold before June or July.

OUT OF LINE

Bernstein analyst Luca Solca said Gucci's sales decline appeared out of line when compared with the 10 per cent drop recorded by the fashion division of rival LVMH, which reported first quarter revenues last week, though Gucci has enjoyed spectacular growth in recent years.

"There seems to be a hint of a brand specific slowdown at Gucci, considering that all other brands within the Kering stable have done better," he said.

Like LVMH, Kering said it was trimming its dividend payout against 2019 earnings by 30 per cent and cutting costs by renegotiating rents, postponing non-essential projects and shelving advertising campaigns.

Kering had previously warned it expected a drop in comparable sales of around 15 per cent in the first quarter and that operating margins would decline.

The company, which also owns Balenciaga, has been one of the big winners of a luxury goods bonanza in recent years alongside LVMH.

That has put these cash-rich luxury conglomerates in a stronger position than some standalone brands that were already in turnaround mode when the coronavirus crisis hit.

Citi analyst Thomas Chauvet said he expected Kering as well as Italian puffer jacket maker Moncler to weather the crisis better than rivals.

He also said Kering was likely to benefit more than others from a move towards e-commerce to offset the hit from store closures, although the broader outlook for the sector was still gloomy.

Mr Duplaix said online sales had risen 20 per cent in the first quarter, with those at Gucci in mainland China more than 100 per cent.

REUTERS