Gucci Sales Growth Remains Strong

(Bloomberg) --

Gucci’s quarterly sales beat estimates as French luxury group Kering’s biggest brand overcame slumping sales in Hong Kong. Investors largely brushed aside concerns about the effects of the coronavirus.

The Italian label’s fourth-quarter sales rose 11% on an organic basis, Kering said Wednesday, growing nearly as much as the previous quarter following a year of deceleration. Analysts had predicted 8.6% growth at the brand.

The shares rose as much as 3.9% early Wednesday in Paris before paring gains. Kering said it has closed half of its stores in mainland China due to the coronavirus -- even more than rival Burberry Group Plc. It’s impossible at this time to fully evaluate the impact of the outbreak on business, Chairman Francois-Henri Pinault said on a conference call.

Gucci’s fourth quarter was “remarkable,” in light of headwinds from political protests in Hong Kong and a higher sales tax in Japan, Chief Financial Officer Jean-Marc Duplaix said. Kering’s sales fell as much as 50% in Hong Kong as pro-democracy protests prompted mainland Chinese to cancel shopping trips to the financial hub.

Ramped up marketing investments in the U.S., including client outreach and greater visibility in department stores, helped Gucci return to growth in that market. The brand’s U.S. business had turned negative in the middle of the year amid fewer visits from Chinese tourists and as the brand faced criticism for advertising a sweater seen by some consumers as resembling offensive blackface imagery.

Stabilizing growth at Gucci could be seen as a success for Kering, which had long promised to deliver a “soft landing” at its flagship brand after several years of breakneck growth.

Other Brands

As Gucci steadily cooled off compared with the nearly 40% growth of 2018, other brands in the Kering stable have helped pick up the slack. Sales of Bottega Veneta’s signature woven-leather shoes and handbags, which got a new look last year under British designer Daniel Lee, jumped 9.4% in the final quarter. Saint Laurent continued to grow by double digits throughout the year.

Still, Kering’s fortunes remain highly dependent on Gucci, which makes up about 80% of profit. Pinault has been facing questions from investors on whether the group plans to seek out acquisitions, such as a puffy-coat maker Moncler SpA, to balance the group’s portfolio.

Pinault said on the call Wednesday that “there’s no active project on the table in terms of M&A,” and the company’s priority is on organic growth in the brands. He said there was “nothing on the table” with Moncler.

“We’re very demanding when it comes to M&A -- we won’t buy because something is available on the market,” he said.

Like other luxury companies, Kering is also confronting the effects of the coronavirus, which began spreading at a faster rate after the quarter ended. The stores in mainland China that remain open are operating on reduced hours, Kering said on the call. The company is also postponing marketing spending as much as possible in China and reallocating inventory to other markets.

“Knowing how dynamic and resilient the Chinese people are, we expect things to return to normal promptly once the emergency is over,” Pinault said.

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

To contact the editor responsible for this story: Eric Pfanner at epfanner1@bloomberg.net

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