Retail | Gucci brand returns to growth

Pedestrians walk past a billboard advertisement for luxury brand Gucci, in Macau

French luxury-goods maker Kering SA reported fourth-quarter revenue growth that beat analysts’ estimates as the Gucci brand showed the first signs of a turnaround under Chief Executive Officer Marco Bizzarri and new creative director Alessandro Michele.
Sales climbed 8 percent on a comparable basis, Paris-based Kering said in a statement Friday. Analysts predicted growth of 4.1 percent, according to the median of 20 estimates. Gucci revenue advanced 4.8 percent, compared with the 1.5 percent growth analysts anticipated – the brand’s strongest result in three years. The shares rose as much as 3 percent in early Paris trading.
Pressure has been building on Gucci – which accounts for nearly two-thirds of Kering’s profit – to translate the buzz around Michele into sales. While the fourth quarter suggests Michele’s debut collections are living up to their critical acclaim, it will probably take until the second half of 2016 to see if he has delivered as the full complement of his designs won’t be in Gucci’s boutiques until the third quarter.
“Gucci has come in with a significant number of new styles that are starting to turn heads,” said Luca Solca, an analyst at Exane BNP Paribas. Michele’s designs – which feature vintage styling and the brand’s double-G logo – accounted for about 30 percent of Gucci’s sales in the quarter, Kering Chief Financial Officer Jean-Marc Duplaix said on a call with reporters.
Security concerns following the November terror attacks in Paris failed to hold back luxury sales in Europe, where high tourist numbers and steadily rising demand from local customers buoyed growth, Kering said. Sales were also strong in Japan, up 14 percent last year, contrasting with poor market conditions in Hong Kong and Macau. Japan has been a bright spot for luxury-goods makers including LVMH and Hermes International SCA.
One disappointment was handbag maker Bottega Veneta, whose sales fell 3.1 percent in the quarter compared with the 3 percent growth predicted by analysts.
Bottega Veneta “continues to be impacted by its high sales exposure to Asia, and especially Hong Kong/Macau where the environment remains challenging,” Berenberg analyst Zuzanna Pusz said in a note. The brand has been penalized by high price gaps between Europe and Asia, where products cost more, according to analysts.
Watches were held back by sluggish demand and the surging Swiss franc, Kering said, yet that was offset by growth in jewelry, which experienced very high volumes in the fourth quarter.
Kering’s full-year sales rose 15 percent to 11.6 billion euros, exceeding the 11.4 billion-euro median of analysts’ estimates. Recurring operating income was 1.65 billion euros. Andrew Roberts, Bloomberg