Gucci China, US Slump Pushes Kering Sales Down 7%

Sales at French luxury group Kering fell 7% in the fourth quarter, dragged lower by a slump in revenue at its biggest brand Gucci which was hit by COVID lockdowns in China and weaker demand in the United States due to a stronger dollar.

Kering shares fell as much as 4% in early Wednesday trade on the disappointing results, which missed analyst forecasts, but recovered to trade up 0.6% at 0851 GMT.

Gucci's revenue in the last three months of the year fell 14% on a comparable basis to 2.73 billion euros ($2.92 billion), lagging an analysts' consensus for an 11% fall.

For the group, which also owns labels Yves Saint Laurent, Bottega Veneta and Balenciaga, analysts had forecast a slide in comparable sales of 3%.

Finance chief Jean-Marc Duplaix said Gucci's 2022 performance "did not meet our expectations", adding the group was confident it could turn around the brand in 2023.

But while Gucci, which accounts for the bulk of profits and revenues at Kering, was the only brand to post a fall in sales, analysts said other labels too posted lower-than-forecast results.

"While China was unsurprisingly a large drag, we note that North America performance came in below our expectations at every single brand," said JP Morgan analyst Chiara Battistini.

Kering said sales fell by 15% in North America in the fourth quarter and by 19% in Asia Pacific. It said wealthy Americans bought luxury goods abroad because of the strong dollar and weak euro, adding Gucci's aspirational products like sneakers also performed less well there.

"This release still leaves a few question marks notably on how long and how costly it will be to see a positive inflection at Gucci and whether Saint Laurent's remarkable growth might be starting to normalise," added Battistini.

LOST MOMENTUM

Gucci parted ways with its star designer Alessandro Michele last November and in January announced the appointment of Sabato De Sarno, a relatively unknown designer at rival Valentino, as its new creative director.

De Sarno will present his debut collection in September, leading some analysts to say it will take time before he can make his mark on the brand.

After stellar growth in 2015-2019, Gucci lost momentum in recent years, lagging rivals such as Louis Vuitton and Hermes.

The label's 2022 recurring operating income was flat at 3.73 billion euros, while that of Saint Laurent jumped 43% to top 1 billion euros.

Duplaix said the beginning of the year had been "very encouraging" in China after travel restrictions were lifted towards the end of 2022.

The luxury sector has been hit by lockdowns in China and the country's subsequent exit from a zero-COVID policy, which spurred a surge of infections in the world's second-largest economy.

Investors have so far shrugged off the poor performance in China, focusing instead on rising expectations for a strong recovery in the country, which has been a major driver for growth in recent years.

But the situation has been more complicated for Kering, since Gucci relies more heavily on China than competitors.

Gucci held back on marketing investments during the pandemic, while larger rival LVMH's two biggest labels, Louis Vuitton and Dior, pushed ahead. Analysts say that helped them gain ground.

LVMH's fashion and leather goods division, home to Louis Vuitton and Dior, grew sales by 10% over the fourth quarter.

Duplaix stressed that Kering's efforts at Gucci were aimed at the long term, with a focus on timeless fashions and higher-priced products as well as a ramp-up in marketing and a higher number of collections.

Gucci-owner Kering shares slump

($1 = 0.9339 euros)