Gucci’s Resilience in China Gives Kering Unexpected Boost

(Bloomberg) -- The Gucci fashion house reported sales that slowed but still beat estimates, cushioning owner Kering’s landing after several years of soaring growth. Its shares rose the most in a year.

The Italian brand’s expansion was led by the Asia-Pacific region, making it the latest luxury label to show that Chinese consumers are still splashing out amid a deepening trade war with the U.S. and protests in the Hong Kong shopping hub.

Kering shares rose as much as 9.1% early Friday.

The company joins other luxury giants in reporting resilience in China, even as mass-market consumer-goods companies are feeling pressure in the key market. Rival Hermes previously reported 15% quarterly growth excluding currency shifts, while LVMH’s fashion and leather business posted a 19% gain for the latest period.

Late Thursday, Moncler SpA reported double-digit sales gains for the third quarter. LVMH’s Bulgari brand plans to add stores in China, saying jewelry sales there could potentially double over the next five years as it dodges a broader slowdown in the world’s second largest economy.

Gucci’s missed sales in Hong Kong were “in large part made up for” by other markets, Kering Chief Financial Officer Jean-Marc Duplaix said on a call. The company reported its results after the close of trading Thursday.

The brand’s sales rose 11% on a comparable basis in the third quarter. While that’s about 2 percentage points above analysts’ estimate, it’s down sharply from the 30% or more at which the label had been expanding over the past two years.

Despite the strength in China, Kering also faces questions over its U.S. business, which unexpectedly shrank during the second quarter. There was no improvement there in the latest three months, Duplaix said, and a turnaround will take time to bear fruit.

“Tourism is down,” he said, and “consumer sentiment is deteriorating.”

Other Brands

The Paris-based company is still looking for another brand to take up the slack as Gucci slows from its breakneck pace. Saint Laurent’s growth fell short of expectations in the latest quarter.

The smaller Bottega Veneta label, which had stagnated, is improving faster than expected after Kering ramped up investments in it. The company plastered trams and subway stations with ads to promote the brand’s revamped look from a young designer, Daniel Lee, hired last year from the ranks of LVMH’s Celine.

To contact the reporter on this story: Robert Williams in Paris at rwilliams323@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman

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