On April 23, Kering, one of France’s giant luxury conglomerates, announced that it expects a 40%-45% decline in operating income for the first half of the year, following a drop in first-quarter sales for its flagship Gucci brand.
Gucci is the brand that accounts for half of Kering’s sales and two-thirds of its profits, but the brand’s first-quarter sales fell 18%, a significant decline from the 4% decline in the previous quarter. The decrease in sales has warned Kering that sales for the fiscal year ending March could fall by about 10%, with sales for the three months through March down 10% at constant scope and exchange rates to 4.5 billion euros ($4.8 billion).
Against this backdrop, Kering’s sales in the Japanese market have been performing well. Japan accounts for 8% of Kering’s sales and continues to do well due to increased tourists due to the weak yen. The group’s retail sales were up a significant 16%. By brand, Saint Laurent showed remarkable growth of 34%, after facing an 8% decline in sales and a 4% drop in retail sales in the first quarter. Direct sales from other Maisons, including Balenciaga, surged 40%. Even Gucci is experiencing a sales slump worldwide, recorded a 7% sales increase in Japan.
On the other hand, retail sales in the rest of Asia Pacific declined 19%, a major blow to the company. The group accounts for 34% of Kering’s total sales, but sales of all brands were down.
Among the most prominent of these was China. This is because Chinese consumers have been hit hard by the bursting of the real estate bubble and are suffering from an unfavorable economic climate. Hence, there is now a polarization in consumer behavior in China, where consumers are either buying brands that will increase the value of their assets as a long-term investment or purchasing extremely inexpensive products.
Since March 19, Kering’s stock price has fallen 18%.
The group’s Chairman and CEO, François-Henri Pinault, commented on the considerable deterioration in first-quarter results in a statement on April 24: “While we had anticipated a challenging start to the year, sluggish market conditions, notably in China, and the strategic repositioning of certain of our Houses, starting with Gucci, exacerbated downward pressures on our topline,”
“In view of this revenue decline, together with our firm determination to continue investing selectively in the long-term appeal and distinctiveness of our brands, we now expect to deliver sharply lower operating profit in the first half of this year.”
Last year, Gucci welcomed Sabato De Sarno as its new Creative Director, refreshing the brand’s mood. De Sarno, who made his debut at Milan Fashion Week in September, presented a sophisticated and sensual style that was a far cry from the flamboyant approach of his predecessor, Alessandro Michele.
Kering reports that the brand’s push for luxury is centered on classic leather goods, and the new Gucci Ancora collection, which includes a shiny Jackie bag and chunky platform loafers, has been well received.
