Kering rebound points to recovery for luxury and Gucci
Asia and US drive recovery as French luxury group’s star brand enjoys sales revival
Luxury group Kering has reported first-quarter sales higher than before the pandemic hit after its biggest brand Gucci enjoyed a strong rebound and shoppers in China and the US spent freely as Covid-19 fears receded.
The forecast-beating performance is the latest sign that the biggest players in luxury are on track to move past the pandemic this year as affluent customers splash out even as spending on areas such as travel remains largely off limits. LVMH reported strong sales last week while Hermès will report on Thursday.
For Kering, the results may also begin to allay investors’ concerns that its brands, which in addition to Gucci include Yves Saint Laurent, Bottega Veneta, and Balenciaga, have been losing market share to rivals since the pandemic began.
Shares in the group controlled by French billionaire François-Henri Pinault are up only 4 per cent since January 2020, while LVMH and Hermès have risen about 50 per cent as demand for their fashion and leather goods has come roaring back after restrictions eased. Kering stock now trades at a roughly 20 per cent discount to rivals.
The slower recovery at Kering is largely down to its reliance on Gucci. Accounting for two-thirds of group sales, the brand has lost momentum after years of stellar growth driven by Chinese consumers and younger buyers who flocked to designer Alessandro Michele’s work.
The absence in Europe of Chinese tourists, who are usually eager consumers of Gucci, has damped sales as did a decision to cut back on the products sold through department stores and independent retailers. Without tourists to cater to in Paris and Milan, Kering scrambled to woo more locals.
“Our larger brands are selling well to local customers but for some of them this was not enough to compensate for the absence of tourists,” said chief financial officer Jean-Marc Duplaix on a call with analysts. “While we are not out of the woods, we are confident in our houses’ ability to succeed in 2021 and beyond.”
First-quarter revenue stood at €3.89bn, up 25 per cent on a comparable basis from the same period last year when the pandemic first hit.
That was a better performance than analysts had predicted — Jefferies had pencilled in sales of €3.7bn while UBS forecast like-for-like growth of 19 per cent.
It also meant that like rival LVMH, Kering’s first-quarter sales exceeded 2019 levels. But LVMH’s performance was slightly stronger, up 8 per cent from 2019, compared to Kering’s 5.5 per cent, led by its leading brand Louis Vuitton.
The recovery for both luxury groups was driven by China and the US where affluent consumers have largely put the Covid-19 crisis behind them even as Europe continues to lag. Kering’s sales rose 83 per cent in Asia, and 46 per cent in North America.
Gucci sales were €2.17bn in the first quarter, still short of the pre-pandemic levels of €2.3bn but an improvement from last year. It has held more fashion events in China, opened pop-up stores and done frequent new product launches that have begun to “pay off in terms of performance”, said Duplaix.
“We are very pleased with the performance of Gucci,” he added. “There is a need to reinvest to sustain the brand.”
At a recent fashion show to celebrate the brand’s 100-year anniversary, Michele sent out designs that featured exuberant mash-ups of Gucci’s equestrian heritage and Balenciaga styles, splashing both logos on the clothes. Fans raved about the collection on social media.
Bernstein analyst Luca Solca welcomed the renewal under way at Gucci. “We believe that the recently launched Gucci + Balenciaga collaboration has promise: this is exactly the kind of thing Gucci should do to reignite young Chinese consumer interest for the brand.”