Retail | Gucci owner’s growth shows Chinese aren’t done with luxury goods

Kering’s Gucci label continued to outpace competitors in the fourth quarter, giving another signal that Chinese appetite for luxury goods remains healthy.

Fourth-quarter sales at Gucci rose 28 percent on an organic basis to 2.3 billion euros (USD2.6 billion), Paris-based Kering said yesterday. Analysts expected 27 percent growth.

The last of the major luxury-goods makers to report for 2018, Kering wraps up an unusually strong earnings season for the industry. The Gucci owner confirmed a trend seen at LVMH and Richemont, which indicated the Chinese are still buying high-priced items, but more on their own turf rather than on trips abroad. Facing a trade war with the U.S. and a slowing economy, the government has been trying to promote more consumption in mainland China amid reports of tougher controls on undeclared imports.

The stock fell 3.7 percent as of 9:01 a.m. in Paris, having gained 24 percent in the past year. Expectations on luxury goods companies rose after LVMH’s leather-goods sales growth trounced estimates in late January.

Demand from Chinese clients remained “extremely dynamic,” and the “trend remains excellent” on the mainland, Chief Financial Officer Jean-Marc Duplaix said on a call with reporters.

Sales of iPhones and Volkswagen cars have taken a hit as the Chinese economy slows, but shoppers have yet to cut back on the high-end handbags and sneakers. 

Kering’s profitability jumped 5 percentage points to 28.9 percent in 2018, helped by the spinoff of Puma to investors, which gave them the chance to dump the German sportswear brand while hanging onto their share of Kering’s high-end portfolio.

Still, Kering’s growth engine has had some hiccups this year after Gucci’s rapid pace of sales growth gradually decelerated throughout 2018. Kering has said that Italian authorities consider the brand underpaid taxes by 1.4 billion euros, though the company disputes the finding.

Gucci’s $500 pink sunglasses and $1,500 monogrammed canvas totes aren’t the only thing driving Kering’s rapid growth. Yves Saint Laurent grew by double-digits and Balenciaga is approaching 1 billion euros in annual revenue, Duplaix said. Robert Williams, Bloomberg