China lockdown hurts Kering’s Q1 revenue – WWD
PARIS – Another swing at Gucci, this time in the first quarter of 2022, eclipsed a respectable set of numbers from Kering, with luxury analysts predicting the shares would weaken in trading on Friday.
In releasing its first-quarter figures after markets closed here on Thursday, Kering said all of its fashion and jewelry houses posted double-digit revenue gains in the first three months of the year, while acknowledging that China’s COVID-19 lockdowns since March were having an impact.
The group’s turnover increased by 21.4% on a comparable basis to 4.96 billion euros.
Francois-Henri Pinault, chairman and chief executive, called the quarter “very solid” and announced “spectacular performances” at Saint Laurent and its so-called “other houses”, including Balenciaga and Kering Eyewear.
However, he noted that “Gucci’s strong presence in North America and Europe has been overshadowed by its exposure to China, where we are strengthening its organization to fully capture the vitality of the market.”
As reported, Gucci recently recruited Laurent Cathala, a Tiffany & Co. executive, to become president of its Greater China fashion business, a new position. He should be in place at the end of June, based in Shanghai.
During a webcast to discuss the results, Kering chief financial officer Jean-Marc Duplaix warned that “activations” to boost Gucci’s “brand perception and penetration” in China would be pushed back further. later in the year, once lockdowns and other pandemic restrictions ease.
Revenue for the Italian house rose 13.4% in the first quarter on a comparable basis to 2.59 billion euros, reflecting a “mixed” performance in Asia-Pacific.
Gucci’s sales have been yo-yoing lately, rising 3.8% in Q3 2021 and then 32% in Q4.
Duplaix was peppered with questions about Gucci’s performance and bristled when HSBC analyst Aurélie Husson-Dumoutier asked if there was “something broken” within the brand, given its recent underperformance by compared to his peers.
“I think your statement is pretty blunt and unfair, there’s nothing wrong with Gucci,” Duplaix retorted. “The fundamentals of the brand are very solid… We are convinced that intrinsically, the brand has all the ingredients to perform very well in the years to come.”
He also trumpeted “a very good start to the year in China” for all Kering brands.
Barclays estimates that around a third of Gucci’s retail sales are in China.
Claire Roblet, director of financial communications and market intelligence at Kering, told analysts that around 40% of Gucci stores in China are located in cities affected to varying degrees by coronavirus restrictions.
She further clarified that around 10% of the brand’s Chinese network was shut down in the last two weeks of March, with around 30% of the locations dark in early April.
Duplaix noted that “the overall mood in China due to restrictions was mixed” in the first quarter and that lockdowns and other measures had “an impact on consumer sentiment in general.”
He added that “some of the consumption in China is driven by intra-China tourism” and that has slowed amid new virus outbreaks. “But we know how resilient the Chinese consumer is and the underlying trends.”
Asked about the first signals for the second quarter, he said “in Western Europe and North America, the trends are still favorable”.
Saint Laurent announced a jump of 37.2% of its turnover in the first quarter on a comparable basis to 739 million euros, the strongest performance of the group.
“All engines are running at full throttle,” Duplaix said, citing strength across all product categories and pointing to an acceleration in ready-to-wear sales from the French house.
Pressed to explain the dynamism of the brand, he praised its “clear strategy on merchandising and distribution” and noted that “Saint Laurent is historically strong with a local clientele, and less dependent on tourist flows”.
Bottega Veneta sales rose 16.3% to 396 million euros thanks to a “constantly deployed iconization strategy”, Duplaix said.
Revenues from “other houses” – which include Balenciaga, Alexander McQueen and Brioni in fashion and Boucheron, Pomellato and Qeelin in jewelry – rose 35.1% to 973.4 million euros.
For the first time, Kering is releasing “Kering Eyewear and Corporate”, whose sales increased by 35.1% on a comparable basis to 308.1 million euros.
The group highlighted a “strong contribution from the Gucci and Cartier brands in particular” in eyewear and from its recently acquired Lindberg Danish eyewear business.
Pinault gave no specific direction for the coming quarters, noting that “while remaining attentive to economic and geopolitical conditions, we are investing in all of our brands, the attractiveness of which will continue to fuel our growth and profitability.”
The first quarter figures highlighted how uneven luxury growth has become in the wake of the pandemic, with retail sales in Western Europe catapulting 75% from 2021, but still 1% below 2019.
North America was up 42% from 2020 and 94% from 2019. Asia-Pacific was flat from 2020, but up 31% from 2019. Japan was increased by 20% compared to 2020, but down 4% compared to 2019.
Sustained demand for luxury goods in the Middle East and Latin America underlined the gain of 42% compared to 2020 for the rest of the world, and an increase of 62% compared to 2019.
Kering is the latest of the major French luxury players to publish its first quarter results.
LVMH Moët Hennessy Louis Vuitton recorded a 29% increase in sales to 18 billion euros, with its fashion and leather goods division recording organic sales growth of 30% over the period.
Hermès International rose 27.1% to 2.76 billion euros, as reported.