Gucci Growth Flattening and Other Key Takeaways from Kering’s Q1 Results | News & Analysis

PARIS, France — Gucci‘s torrid growth rate is coming back to earth, but red-hot sibling brand Balenciaga picked up some of the slack for parent Kering SA, the French luxury goods conglomerate said Wednesday.

Kering posted slightly higher-than-expected sales growth in the first quarter, with growth still fueled by its star brand Gucci, which reported sales of €2.3 billion, up 20 percent from a year earlier. That pace, though far faster than the luxury market as a whole, was a comedown from the first quarter of 2018, when the Italian fashion house reported a 49 percent jump in sales.

Total group revenue was €3.8 billion, up 17.5 percent on a year earlier. That growth was also supported by double-digit increases at Saint Laurent — where sales were €497.5 million, up 17.5 percent on a comparable basis— and also at the group’s smaller houses, including Balenciaga.

These increases offset a decline at Bottega Veneta, where sales were €248.1 million, a 9 percent drop in comparable sales. The label is only beginning to feel the positive effects of its new creative director, Daniel Lee, whose initial products are selling well, Kering chief financial officer Jean-Marc Duplaix said in a call with analysts.

There’s a less favourable environment for retail and also for luxury in America.

The group’s performance was “no big surprise,” said Luca Solca, a luxury goods analyst at Sanford C. Bernstein. Kering had warned that Gucci’s growth would moderate, and the pace had dropped off in recent quarters.

Some key takeaways from Kering’s results:

Gucci is experiencing a “normalisation.” Duplaix described Gucci’s slower growth as “a state of normalisation,” adding that he’s “very confident with the products in the pipeline,” and that the company plans to further roll out a new store concept that better reflects the vision of creative director Alessandro Michele. (About 45 percent of Gucci stores currently reflect the new concept; by the end of 2019, it should be 60 percent.)

“We’ll continue to fuel [growth] with newness and carryovers,” Duplaix said.

Duplaix attributed a slowdown in the North American market in part to a decrease in tourism in the US, as well as late delivery of certain styles to stores. The company has lost about 1.5 percentage point of growth due to a decrease in Chinese and Latin clients shopping in the US, he said.

“There’s a less favourable environment for retail and also for luxury in America,” he said.

He dismissed the idea that backlash against a balaclava sweater widely criticised for resembling blackface had hurt sales. In February, Gucci apologised and pulled the sweater from stores.

He also noted that shoes and ready to wear are tracking better than bags with European and American clients, indicating a broader consumer shift away from “It” bags.

In Asia, which represented 42 percent of sales in the first quarter, the brand benefited from Chinese New Year purchases, as well as growing domestic spending by Chinese consumers.

To be sure, maintaining a healthy momentum at Gucci remains a priority for Kering, given that the brand represented about 80 percent of the group’s profits last year.

Balenciaga is now the fastest-growing brand in couture and leathers goods. Kering doesn’t split out the brand’s results, but it’s the largest component of an “other houses” category that grew 21.7 percent (this group also includes Alexander McQueen). Both businesses are making progress toward €1 billion a year in sales. At Balenciaga, Duplaix noted the “good showing of shoes and ready-to-wear [categories]” and the expansion of the retail footprint.

Bottega Veneta is showing promise under Daniel Lee.
It was a challenging quarter for the quiet luxury brand, although initial product designed by creative director Daniel Lee, whose first runway collection received mixed reviews, showed promise in stores, Duplaix said. Two new bag styles were seeded in 10 stores and briskly sold out, attracting a new client profile as well as existing clients, according to the executive.

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