Gucci's Floral-Embossed Star Won't Shine Bright Forever for Kering

(Bloomberg Gadfly) -- A few days ago, singer Rita Ora stepped out in Hollywood in a clashing yellow printed Gucci shirt and green satin Gucci trousers.

Investors in the label's parent, Kering SA, have been more than spared such a jarring spectacle. The company reported organic sales growth -- excluding corporate purchases and disposals, and exchange rate movements -- of 28.6 percent in the first quarter, more than double the consensus of analysts' forecasts. 

The superstar was Gucci, with organic sales up 48.3 percent, the best performance in 20 years and putting it ahead of schedule to achieve its Ebit margin target of 30 percent. 

It's a miraculous turnaround for a washed-up brand that, at its lowest point in December 2014, parted company with both its chief executive and creative director. The question now is whether it will continue, and the answer is more than just frippery to Kering investors. Gucci accounts for about half of the group's luxury sales and about 60 percent of its operating profit. Some slowdown from this newfound superstardom is inevitable. So it will be up to the parent's smaller brands, as well as Puma, in which Kering has a majority stake, to make up any slack.

While Kering's beat is impressive, it acknowledges that it has been helped by comparisons with the first quarter of 2016. That was probably the luxury nadir, as demand from China slowed and travelling luxury consumers avoided Europe in the wake of the terrorist attacks on Paris. The latest results reflect a a broad recovery in luxury, led by China.

Comparisons for Kering become tougher throughout the year. One thing that will be missing is last year's big boost from the introduction of new creative director Alessandro Michele's debut collections into Gucci stores, though there will be some incremental developments, such as an online offering in China and the introduction of Michele's first fragrance.

With its bold prints and brash logos, Michele's vision is a very specific look. While the tone is set, it needs to evolve over time, so that it doesn't become stale. Given that celebrities like Ora are still lapping up the label, it has probably got a bit further to go before this becomes a worry.

If and when Gucci does slow, other parts of the portfolio will have to pull their weight. Luckily, there was some comfort here. 

The performance of Saint Laurent should alleviate concerns that a change in creative director could rupture its successful sales growth. That looks to have been avoided, given the waiting lists for some pieces from new designer Anthony Vaccarello's collection. Even fourth-biggest brand Bottega Veneta is recovering, with organic sales growth turning positive for the first time in more than a year. Puma's turnaround, meanwhile, increases the likelihood that Kering will finally offload its 86 percent stake.

Shares in Kering -- which jumped to a record high on Wednesday -- have almost doubled over the past year. That sort of performance is unlikely to be repeated. Kering trades on a forward price earnings ratio on 22 times, a deserved premium to the Bloomberg Intelligence luxury peer group. Given the exceptional performance at Gucci, progress from here is likely to be more limited. 

Trends are notoriously fickle, and Gucci's floral embossed star has a shelf life. But for now at least, its premium position, barring any fashion faux pas, should continue for a little longer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

To contact the author of this story: Andrea Felsted in London at afelsted@bloomberg.net.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net.