Kering’s Slow Return to Growth

By Mimosa Spencer and Tassilo Hummel
PARIS (Reuters) – Luxury group Kering (EPA:PRTP) has indicated that its return to growth will take time following another quarter of weak sales from its prominent brand, Gucci, which has not yet appointed a new chief designer.

Shares in Kering rose initially on Tuesday but later stabilized as the market speculated about the company’s potential to turn around.

The French group reported a 12% decline in sales for the October-December quarter compared to the previous year, influenced significantly by a 24% drop at Gucci. This brand accounts for nearly half of Kering’s sales and two-thirds of its recurring operating profit but continues to face challenges.

In contrast, sales from Kering’s smaller brands, especially Bottega Veneta, performed better than anticipated.

Analysts at RBC expressed that these results might reassure investors, noting a modest improvement in trends despite prevailing low sentiment and favorable market positioning.

CEO Francois-Henri Pinault stated that the group has reached a stabilization point and is gearing up for gradual growth. He expressed confidence that Gucci would rebound and forecasted a slow sales recovery starting in 2025. Kering is focused on cost control and plans to close around 50 of its 1,800 stores this year.

Last week, Kering dismissed Gucci designer Sabato de Sarno without hinting at a successor. Executives contended that De Sarno’s tenure was significant for shifting the brand back to classic elegance, yet emphasized the need for fresh artistic guidance.

Gucci’s sales decline in the fourth quarter highlights ongoing struggles in revitalizing its brand aesthetic, with analysts initially predicting a recovery next year but noting that recruiting a new designer could impede progress.

The luxury industry’s sales momentum is at its lowest in years, primarily affected by the property crisis in China. Finance chief Armelle Poulou reported that sales in mainland China and among global Chinese shoppers showed a combined increase of 6 percentage points from the third quarter, alongside rising sales in the U.S.

Once a leader in the fashion industry from 2016 to 2020, Gucci has fallen behind as consumer preferences have shifted. Competitors like LVMH-owned Louis Vuitton and Dior have successfully leveraged the post-pandemic demand for fashion.

Kering’s full-year recurring income from group operations reached 2.6 billion euros, slightly exceeding the anticipated 2.5 billion euros communicated in October. The company’s 12-month price-to-earnings ratio stands at 19, trailing behind LVMH at 24, Moncler at 25, and Burberry, who is currently revitalizing its brand, with a significant ratio of 60.

($1 = 0.9705 euros)