Gucci: Sales growth drives share recovery for owner Kering

The first sales growth at Gucci for two years teamed with an earnings performance confounding doom and gloom forecasts, sparked a share price recovery for owner Kering yesterday.

Like-for-like sales at the Italian luxury goods house increased by 4.6% in Q2 against a 7.9% drop in Q1. Analysts had predicted a 3.2% decline for the second quarter.

Kering’s chairman and CEO. François-Henri Pinault, said: “We are particularly satisfied with the progress at Gucci and the positive reception given to the brand’s new creative direction.”

But management warned the brand is still a long way from a turnaround with real payback on its business transformation initiatives unlikely to be seen until the end of the year and into 2016.

Gucci’s comeback in Q2 was driven by strong tourist sales in Western Europe and Japan and markdowns in China. Total retail sales were up 10% . Sales in own stores were up 19 % in Japan and 20% in Western Europe, while APAC saw a modest 3% rise.

First-half operating income came in at 773m ($859m) ahead of expectations. The results gave a welcome fillip to Kering’s share price sending it up by as much as 7% following the announcement.

Gucci cut prices in China earlier this year by up to 50% to clear stocks ahead of autumn product, designed by new head designer Alessandro Michele, arriving in stores this September. The market remains concerned the brand will suffer in Q3 with no discounts to drive its numbers.

As a result of the discounting and other factors operating margins took a hit of 470 basis points to 26.8% in the first half and wholesale fell 19% in the second quarter as the brand continued to cull its distribution network.

Kering reminded analysts yesterday Gucci is in transformation mode this year with new management and creative direction, the dropping of distributors, introducing new products and renegotiating rents in Hong Kong, Macau and mainland China.

The group’s total revenues were 5.5 bn euros in the first half, up 17% on last year, or 3.5% on a comparable basis.

Gucci aside, how did the other Kering brands do? Well Q2 comp sales at Bottega Veneta were up 9.3%, to 339m euros (US$375m) beating analysts’ estimates for a 5% gain.

At Saint Laurent like-for like sales were up by 27.3% to 232m euros (US$256m) with sales in own stores up 82% in Japan and 45% in Western Europe and 26% in North America.

Meanwhile, retail sales in the group of couture and leather goods brands which include Balenciaga, Alexander McQueen and Stella McCartney were up 22% during Q2.

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