Kering falls after China lockdowns weigh on Gucci sales

KERING shares tumbled after growth at Gucci, its biggest brand, missed estimates in the first quarter, hindered by lockdowns in China.

Sales at Gucci, which generated more than half of Kering's revenue in the period, rose about 13 per cent on a comparable basis, the Paris-based company said on Thursday (Apr 21). Analysts had predicted a gain of almost 19 per cent.

The stock fell as much as 7 per cent early on Friday in Paris trading.

Kering's figures follow strong results from LVMH and Hermes International last week. The luxury giants benefited from rebounding demand in Europe and North America, even as virus-related lockdowns in China and the war in Ukraine worsened inflationary pressures and supply-chain snags. The Asia-Pacific region was Kering's largest market last year, with 38 per cent of sales.

"Sales momentum remained very strong with local customers in North America and Western Europe in particular," Kering said of Gucci's results. "Performance in Asia-Pacific was more mixed due to new Covid-related lockdown measures at the end of the period, notably in Mainland China."

On a call, chief financial officer Jean-Marc Duplaix said the fundamentals of Chinese demand were intact but that the virus-related restrictions, notably in Shanghai, were still "extremely difficult." He also said that the current lockdown situation in the country was more severe than last summer.

The group's online operations are also disrupted with the closure of a warehouse in Shanghai. "There has not been I would say a shift to online that we had observed in the previous situation in terms of lockdown," Claire Roblet, who oversees investor relations, said on the call.

"Gucci weakness was largely driven by the brand's higher exposure to China, which despite a strong Chinese New Year declined significantly in the last 2 weeks of March as lockdown restrictions impacted traffic and caused supply chain issues," Deutsche Bank analysts Matt Garland and Adam Cochrane wrote in a note.

Total revenue at Kering climbed about 21 per cent in the quarter on a comparable basis, just ahead of estimates, as other top brands performed well. Yves Saint Laurent showed the biggest jump, with sales up about 37 per cent, blowing past predictions for 24 per cent growth. Bottega Veneta also surpassed analyst estimates.

Of China, chief executive officer Francois-Henri Pinault said Thursday that Kering is "boosting its organisation to fully capture the vitality of the market." Gucci earlier this month named Laurent Cathala president of its Greater China fashion business.

Duplaix explained on the call with reporters that it's important for Kering's brands, notably Gucci, to have more powerful regional units, with more local staff in the teams since each market has its own peculiarities. BLOOMBERG