Negative Gucci turning the corner for Kering as Bottega Veneta, Saint Laurent excel in Q3
By Yasameen Noorian

There were enough positives to please Kering late Thursday as the luxury goods group talked up its star brand Gucci and sports brand Puma …

Oct 24, 2014
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There were enough positives to please Kering late Thursday as the luxury goods group talked up its star brand Gucci and sports brand Puma with both showing signs of a turnaround in Q3 while performances at its other smaller fashion brands, especially Bottega Veneta and Saint Laurent, impressed. However, its stock was down almost 4% in early Friday trade to €147.55 a share. Kering Thursday also named Merinda Yeung, its Taiwan division chief, to run the overall Gucci operations in China (see below).

Overall, Kering sales for the quarter rose 3.3% year-on-year, or up 4.4% currency neutral, to €2.61bn ($3.3bn), broadly in line with expectations. Overall luxury revenues rose 3.7% to €1.68bn.

On a conference call, talk was dominated by Gucci, which accounts for around 52% of the total luxury sales, with Kering finance director Jean-Marc Duplaix saying: “It is a gradual improvement … I think that globally for Gucci we can say that we have reached an inflexion point at the end of the second quarter.”

It said demand in China had started to return since Q2 and added that appetite for the brand from local consumers in western Europe was also getting stronger.

Gucci’s performance, although still down 1.6% on-year in the quarter to €851m, is making headway in its major markets such as western Europe and China, despite remaining negative, Kering said.

Analysts, however, had expected overall Gucci sales to drop no more than 1% or remain flat and Kering failed to offer any guidance on the timing of a return to sales growth for Gucci. But at least the latest dip was an improvement on the 2.4% decline recorded in Q2.

On the downside, Kering also said Gucci purchases from Japanese and Russians in western Europe had declined since the beginning of the year and this negative trend had continued in Q3.

The brand’s directly operated store sales fell 5% in the Asia Pacific region and were down 1% in western Europe, but were up 8% in North America and rose 4% in Japan.

Kering had indicated in July it expected Gucci’s wholesale revenue to stabilise in H2 but they fell 8% in Q3 on top of a 12% dip in H1.

Duplaix cited “solid trends” in demand fort Gucci handbags, which represent 32% of retail sales, boosted by the new Swing and Bright Diamante lines, with the Jackie Soft also “showing promise”. He also highlighted double-digit growth for creative director Frida Giannini’s autumn ready-to-wear and noted men’s and women’s shoes “grew nicely.” Small leather goods and luggage were in negative territory, he added.

Meanwhile, Kering said sales from its “soft luxury” products – apparel and leather goods – rose 5%, while revenue from “hard luxury,” (watches and jewellery) fell 8%.

Kering said sales from Bottega Veneta, its second-biggest fashion brand, rose 10.8% on-year in Q3 to €286.2m while revenue from Saint Laurent was up an impressive 27.5% to €177.8m. There were alspo double-digit gains at Balenciaga and “strong growth” at Stella McCartney, Alexander McQueen and Christopher Kane, Kering said.

Saint Laurent registered double-digit gains across both retail and wholesale channels, with leather goods up 35% in direct retail, led by its Sac du Jour and Monogram lines, with womenswear increasing 49%, to account for a quarter of all retail sales, while menswear improving 17%.

By region, Saint Laurent sales rose 21% in Japan, 26% in Western Europe, 35% in Asia-Pacific, 47% in North America and 74% in other countries.

Another bright note was Kering’s Puma fashion/lifestyle/sportswear brand which enjoyed its best quarter in several years with total sales for the brand improving 2.8% to €847.8m while comp sales drove 6.2% higher.

Duplaix said the brand was reaping the fruits of its turnaround and hard work from its new management and creative teams. It also benefited from a rebound in the eurozone, particularly in France and Germany, its two biggest markets.

“We consider that there are very encouraging signs [at Puma] and order books are filling up nicely,” Duplaix added.

Puma’s ‘Forever Faster’ campaign launched in August, was credited with helping drive strong sales of the brand’s 2014 autumn/winter collection in Western Europe.

Sales at the group’s sports and lifestyle activities, which include Puma, grew nearly 3% but were affected by currency exchange rates. On a comparable basis, sales grew 6%.

In its trading statement for the quarter, CEO François-Henri Pinault said: “Luxury activities held firm in a complex economic environment thanks to a strong sales uptrend in our network of directly operated stores.

He added: “Faced with uncertain market conditions, we remain vigilant. The dynamic performance of the group, which has achieved steady growth over the first nine months of the year, allows us to pursue with confidence and discipline the implementation of our strategy, aimed at taking full advantage of the strengths inherent in each of our brands.”

Merinda Yeung was named head of Gucci’s China ops Thursday. Yeung, who only joined the brand in February, was previously head of Singapore for Chanel and held positions in Taiwan, Hong Kong and Vancouver with luxury brand Louis Vuitton. The Gucci China post has been vacant since January, when former Estèe Lauder executive Carol Shen departed by mutual consent. Although the brand doesn’t release Chinese sales figures, HSBC Holdings estimates sales there fell 2.3% to €462m last year. By comparison, sales grew 30% in 2011 and 21% in 2012, HSBC said. Gucci chief executive Patrizio di Marco has said that the company is consolidating in the region after having grown too fast. “We focused on dimension in China,” he said, adding that sometimes “when you run, you may forget you need to walk.”

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