Kering Plunges as Gucci Sales Momentum Slows From Red-Hot Pace
Kering’s Red-Hot Gucci Brand is Cooling Faster Than Expected
(Bloomberg) -- Kering shares fell after sales growth at the French luxury group’s Gucci brand slowed from the breakneck pace of the past three years, even as rival LVMH accelerates.
The Italian label’s comparable sales rose 12.7% in the second quarter, compared with an analyst forecast of 14.5%. Even though Kering’s overall sales gains were roughly in line with expectations and its profitability keeps growing, the waning momentum at its key brand alarmed investors.
“We expect the market will continue to wonder about the future ‘soft landing’ of Gucci, despite a very healthy margin improvement,” Bernstein analysts led by Luca Solca said in a note.
The shares fell as much as 9.9% in Paris early on Friday, the most since October. Kering reported its results after the close of trading Thursday.
Gucci is coming up against tough comparisons, after sales surged 40% a year earlier and 20% in the previous quarter. Kering has been trying to persuade investors that the brand’s growth is simply normalizing and that the decadent wares by designer Alessandro Michele aren’t going out of style.
Slowdown ‘Expected’
“This slowdown was expected and has been commented on in recent quarters,” Chief Financial Officer Jean-Marc Duplaix said on a call.
As Gucci returns to earth, Kering is no longer outperforming rival LVMH, whose key fashion and leather category surged 20% in the quarter. The Louis Vuitton and Christian Dior owner’s shares touched a record high Thursday as creative revamps at key brands fueled gains.
What Bloomberg Intelligence Says
“Kering’s biggest and most profitable brand, Gucci, has the ability to maintain peer-beating midterm growth rates, in our view, on design momentum and consumer following.”
Deborah Aitken, consumer products analyst
and Maxime Boucher, associate analyst
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Gucci remains enormously profitable, with its operating margin rising to 41% for the first half. Kering also said it continues to perform well in China, where authorities have taken steps to bring more luxury purchases onshore.
The company reported bright spots elsewhere, including an improvement at the Bottega Veneta brand, which has been struggling. Though analysts expected a further decline in sales, it returned to growth in the quarter, as Kering said the first collections from a new creative director, Daniel Lee, were well received.
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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