Jun 20, 2017 | By Carlene Thomas Bailey
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Apr 22, 2015
Operation Gucci’s wheels may be in motion but there’s still a long way to go. Parent Kering admitted as much Tuesday with the luxury goods group saying “our priority is to give Gucci new impetus”. Its latest results were still far off the brand’s heyday when all bowed before its greatness.
The flagship brand, which accounts for nearly 60% of Kering’s operating profit, posted a steeper-than-expected decline in Q1 comp sales, which it blamed on a transition period as it works to regain momentum under a new CEO Marco Bizzarri and creative head Alessandro Michele. But at least Kering is putting a timescale on when we should see improvements – flagging H2 as the turnaround half.
Kering’s – and Gucci’s – sales were flattered by that enduringly weak euro but when you look at the comp sales figures, it shows the extent of the brand’s problems. Comparable sales fell 7.9% to €869m in the three months to March 31, while analysts had expected a 3-6% decline.
It said Gucci store comps were up a solid 6% in Western Europe, stable in the US, but were “mixed” elsewhere with tough year-ago comparisons in Japan and even tougher market conditions overall in Asia-Pacific where sales slid 10% as its performance in Greater China “deteriorated compared to earlier in the year”.
On Tuesday, Kering said Gucci’s next move will be to shift the offer of its range of handbags, adding higher priced products and improving its entry-level offer.
CFO Jean-Marc Duplaix said that the label needed to find a better balance between items sporting its famous logo and items without logos. But rather than shying away from the label’s logo entirely, the brand plans on finding “a smart interpretation” of the two letters.
Duplaix cited Yves Saint Laurent creative director Hedi Slimane as an example of how to turn a brand around. He revamped the image of Kering’s third largest luxury brand in 2013, sparking double-digit sales growth (see below).
Back with Gucci, new store openings will be “moderated” for the brand in 2015, Kering said. Instead, the brand will refurbish stores across the globe. Since the beginning of the year, Gucci has closed six stores and opened three, bringing the total to 502.
Among other initiatives planned for Gucci’s revival which is expected to show initial results in the second half of the year – store staff will have more training, the label’s advertising campaign will be “revisited”, packaging will be modified and the website will be redesigned.
Duplaix said Kering was confident in the new management team’s ability to steer Gucci back to growth and added that there are already signs of improvement with the label’s ready-to-wear category.
Nonetheless, “we cannot say yet that Gucci is back on the stage of fashion,” he admitted.
But the mood was a good deal brighter sifting through the rest of its high end portfolio as Kering delivered opening quarter group sales up 11.4% to €2.65bn ($2.85bn) as the weak euro bolstered sales, although overall comps slipped 0.6%, hurt by the Gucci performance, it said.
Its key Luxury Activities sector posted revenue growth of 11% in Q1 with directly operated stores, which account for 71% of sales, driven by the “positive trends” in Western Europe, where comps sales drove 14% higher, and in North America, where comps lifted 3%.
Bottega Veneta posted revenue growth of 16% and a 3% rise in comp sales, mainly driven by “excellent momentum” in Western Europe, where comp sales jumped 34%. However, that more modest rise in comps was held back by the difficult business environment in Hong Kong and Macau, where the label produces around one fifth of its sales, Duplaix said.
Yves Saint Laurent continued to turn in “sterling performances” across all regions and product categories in Q1 with sales total sales up 34% and by 21% on a comps basis. Directly operated stores delivered “particularly strong” performances in North America, Western Europe and Japan, where comps rose 39%, 29% and 22%, respectively.
In its ‘Other Luxury Brands’ category, revenues grew 14% but were down nearly 4% on a comps basis.
Couture & Leather Goods comp sales were up 16% in directly operated stores, buoyed by solid trends at Balenciaga and “vigorous” growth at Stella McCartney and Alexander McQueen.
Watches & Jewellery, meanwhile, recorded mixed sales performances mainly resulting from the very strong comparison bases for Boucheron in Japan and the continued caution exercised by third-party distributors in the watches sector.
Total sales generated by Sport & Lifestyle activities were up 13% and rose 4% comps-wise. Puma posted total sales growth of 13% and a 4.5% comps rise, mainly driven by strong sales momentum in footwear.
The overall figures “reflect a complex economic and monetary environment as well as the transition under way at Gucci,” chief executive François-Henri Pinault said of the results. He expects a “gradual improvement” in the company’s performance throughout the year.
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