Kering Eyes Ultra-wealthy as Results Lag Peers
PARIS — Kering is counting on its wealthiest customers to help it catch up with its luxury sector peers during what is a transitional year for its star brand Gucci.
The French luxury group, which also owns brands including Balenciaga, Saint Laurent and Bottega Veneta, reported Tuesday that sales inched up by 2 percent in the first quarter, sharply lagging its larger competitors LVMH Moët Hennessy Louis Vuitton and Hermès International.
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Revenues in the three months to March 31 totaled 5.08 billion euros, representing an increase of 1 percent in comparable terms, amid a decline in revenues in North America and a gradual recovery in China. The modest sales increase came on the heels of a 2 percent decline in the fourth quarter.
Organic sales at Gucci were up 1 percent in the first quarter, compared with a 14 percent drop in the prior three months.
The figures were slightly above a consensus of analyst estimates, which had called for a 1 percent rise in overall comparable sales to 5.04 billion euros. Like-for-like sales at Gucci had been forecast to remain flat.
“Kering’s performance in the first quarter remained mixed, as we had anticipated,” Kering chairman and chief executive officer François-Henri Pinault said in a statement.
“As we work to augment the desirability of our brands and raise their profile in key markets, we are encouraged by the gradual improvement in activity month after month during the period. A host of initiatives undertaken by all our houses to enhance their appeal and exclusivity lays the foundations for sustained, profitable growth,” he added.
Key to those efforts is the ongoing brand elevation at Gucci, through initiatives that include the launch of Salon, permanent and temporary spaces where high rollers can order bespoke luggage, exotic leather goods, furniture and high jewelry, with prices ranging from about 40,000 euros to 3 million euros.
The first ultra-luxe Salon store opened in Los Angeles this month, complete with fresh-off-the-red-carpet gowns.
On a conference call with analysts, Kering chief financial officer Jean-Marc Duplaix said the launch was a “tremendous success,” helping to reel in well-heeled U.S. clients even as aspirational customers reined back.
“The concept of Salon, it’s like high jewelry: we know that in terms of contribution to the sales, it’s not necessarily a game changer short-term. But in terms of image, in terms of engagement with key clients, which are also some ambassadors for the brand, it’s absolutely key to invest there,” he said.
Meanwhile, Gucci is counting on the opening of its “Gucci Cosmos” exhibition in Shanghai this week to bolster its image and position in the Chinese market, where the Italian brand saw an acceleration in sales in March and April but remains in the throes of a turnaround plan.
“We need to reinforce the structure we have in place in China, and the quality of the people in the stores. We need to continue to elevate the brand perception,” said Duplaix.
“We need to enhance [the] retail experience. We know that the brand had been quite weak compared to some peers,” he added. “It’s a work in progress, but we start to see some encouraging signs across the different stores.”
The Italian brand is in a transformation phase, having parted ways with its longtime creative director Alessandro Michele last November. His successor Sabato De Sarno, previously a designer at Valentino, is to unveil his first effort in September during Milan Fashion Week.
As a result, Kering is “very humble” in its ambitions for 2023, Duplaix said.
“We continue to consider that Gucci could see its EBIT [earnings before interest and taxes] margin flat to slightly up in 2023,” he said, adding that it is targeting midsingle-digit top-line growth for the brand, roughly in line with the planned increase in operational expenditure as it continues to upgrade its store network.
“The work we are doing at Gucci is a journey, not a race, and we don’t expect it to pay off in the very short term. But we are extremely heartened by our progress to date, by the drive of all the teams and by the reaction in the market,” the executive said.
Prior to the release of the figures, Luca Solca, analyst at Bernstein, said he was confident that Kering could revive Gucci’s fortunes, following its textbook relaunch of the brand in 2015.
“Its track record in brand revivals prompts us to believe that Kering’s top management stands a high probability of successfully turning Gucci’s fate around,” he said in a report in February.
“Scale is the name of the game in luxury business, and Gucci is a member of the exclusive megabrand club,” Solca added. “Once Gucci has a new vision, it will have all it needs to attract attention and lure consumers back to its stores.”
Commenting on the first-quarter results, the analyst noted that it was the first time in a year that Gucci hadn’t produced a negative surprise.
Meanwhile, the group’s other brands posted mixed results.
Comparable sales at Bottega Veneta were flat in the first quarter, compared with a 6 percent rise in the previous three months. Kering is bolstering the brand’s retail network, and strategically managing the availability of its most desirable products, like its new Andiamo bag.
“We have a record sellout with the Andiamo bag, so it should contribute along the year, and that’s the plan: to reduce the level of inventories,” said Duplaix. Bottega Veneta is set to stage a repeat show of its fall 2023 collection in Beijing on July 20.
Organic sales at Saint Laurent were up 8 percent, versus a 4 percent rise in the prior quarter. The brand is also reaping the results of introducing products at higher price points, like its Icare maxi tote bag, which retails for $4,900.
Kering declined to comment on reports that it is set to pay a record-breaking 13 million pounds a year in rent for a new Saint Laurent store on London’s Bond Street.
Like-for-like sales at other houses were down 9 percent, following a 4 percent drop in the fourth quarter, when sales were hit by the advertising scandal at Balenciaga.
While Balenciaga powered ahead in Asia-Pacific, it remains impacted in the U.S., U.K. and Middle East. “In continental Europe, we start to see a normalization and we are positive again,” said Duplaix, anticipating that the brand would probably not regain its footing completely until the second half.
Kering’s jewelry brands, which include Boucheron and Qeelin, saw double-digit growth in the quarter, and menswear brand Brioni’s sales were “excellent,” underscoring the importance of top-tier customers.
Duplaix believes they will be key to future growth in North America, where the group’s retail sales declined 18 percent during the first three months of the year.
“Clearly there was a weakness of the demand of the more aspirational clients. We see that among the top clients, we continue to grow in the U.S.,” he noted.
As a result, it plans to rein back its brands’ exposure to outlet stores globally, even as they continue to streamline their wholesale accounts. “It’s something that will be also managed and reduced going forward,” Duplaix said.
Kering is the last of France’s three biggest luxury groups to report first-quarter results.
Earlier this month, LVMH said revenues rose 17 percent in the three months to March 31 to 21.04 billion euros, an increase of 17 percent at constant exchange. Its fashion and leather goods businesses posted an 18 percent rise in organic revenues.
Hermès reported sales gained 22 percent during the quarter, despite upping the price tags an average of 7 percent — as high as 10 percent in some regions. Revenues rose 23 percent on a like-for-like basis.
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