© Reuters. FILE PHOTO: A man looks at a window display outside a Gucci store, part of the Kering group, in the Tsim Sha Tsui shopping district in Hong Kong January 17, 2013. REUTERS/Bobby Yip
2/2
By Mimosa Spencer and Silvia Aloisi
PARIS (Reuters) – French luxury group sales Dry (EPA:) fell 7% in the fourth quarter, dragged down by a drop in revenue at its biggest brand, Gucci, which was hit by COVID lockdowns in China and weaker demand in the United States due to a stronger dollar.
Kering shares fell as much as 4% in early trading on Wednesday on disappointing results, which missed analysts’ forecasts but rallied to trade 0.6% at 0851 GMT.
Gucci’s revenue in the final three months of the year fell 14% on a like-for-like basis to 2.73 billion euros ($2.92 billion), below analyst consensus of an 11% drop.
For the group, which also owns the Yves Saint Laurent, Bottega Veneta and Balenciaga brands, analysts forecast a drop in like-for-like sales of 3%.
Finance chief Jean-Marc Duplaix said Gucci’s performance in 2022 “did not meet our expectations”, adding that the group was confident it could rebrand in 2023.
But while Gucci, which accounts for the lion’s share of Kering’s profit and revenue, was the only brand to report a drop in sales, analysts said other brands also underperformed.
“While China was unsurprisingly a big drag, we noted that North America performed below our expectations on every brand,” said Chiara Battistini, an analyst at JP Morgan.
Kering said sales fell 15% in North America in the fourth quarter and 19% in Asia Pacific. He said wealthy Americans were buying luxury goods abroad because of the strong dollar and weak euro, adding that Gucci’s aspirational products such as sneakers also performed worse there.
“This announcement still leaves some question marks, particularly about how long and how much it will take to see a positive turnaround at Gucci and whether Saint Laurent’s remarkable growth might be starting to normalize,” Battistini added.
LOST MOMENTUM
Gucci parted ways with its star designer Alessandro Michele last November and in January announced the appointment of Sabato De Sarno, a relatively unknown designer at rival Valentino, as its new creative director.
De Sarno will unveil his debut collection in September, leading some analysts to say it will take time before he can make his mark on the brand.
After stellar growth in 2015-2019, Gucci lost momentum in recent years, falling behind rivals like Louis Vuitton and Hermes.
The label’s recurring operating income in 2022 held steady at €3.73bn, while Saint Laurent’s increased 43% to exceed €1bn.
Duplaix said the start of the year had been “very encouraging” in China after travel restrictions were lifted at the end of 2022.
The luxury sector has been hit by lockdowns in China and the country’s subsequent exit from a zero-COVID policy, leading to a surge in infections in the world’s second-largest economy.
Investors have so far downplayed China’s underperformance and instead focused on rising expectations of a strong recovery in the country, which has been a major driver of growth in recent years.
But the situation has been more difficult for Kering, as Gucci is more dependent on China than its competitors.
Gucci reined in marketing investments during the pandemic, while rival LVMH’s two biggest brands, Louis Vuitton and Dior, forged ahead. Analysts say that helped them gain ground.
LVMH’s fashion and leather goods division, home to Louis Vuitton and Dior, increased sales by 10% during the fourth quarter.
Duplaix emphasized that Kering’s efforts at Gucci were aimed for the long term, with a focus on timeless fashions and higher-priced products, as well as increased merchandising and a larger number of collections.
Gucci owner Kering shares the fall https://fingfx.thomsonreuters.com/gfx/mkt/klvygdyybvg/kering.PNG
($1 = 0.9339 euros)
