October 24, 2013 / 7:06 PM / 5 years ago

Kering's Gucci posts weakest sales growth in four years

PARIS (Reuters) - Gucci still has more work to do to become a more exclusive brand, parent Kering (PRTP.PA) said on Thursday after the leather goods maker posted its weakest sales growth in four years.

Gucci, which accounts for more than half of Kering’s valuation, has been hit like arch-rival LVMH’s (LVMH.PA) Louis Vuitton by lower Asian demand and disruptions linked to efforts to reposition itself more upmarket.

Gucci’s like-for-like third-quarter sales rose 0.6 percent, undershooting analysts’ forecasts of at least 1 percent growth, while Louis Vuitton’s sales rose an estimated 1-2 percent during the period.

By comparison, both brands still enjoyed sales growth of more than 10 percent between 2010 and early 2012, bouncing back from the 2008-2009 spending downturn triggered by the U.S. and European financial crises.

The declining sales trends at Gucci and Louis Vuitton are more a reflection of consumers’ weaker appetite for mega brands than a sign of a general slowdown in the luxury goods market, analysts said.

Rival brands such as Prada (1913.HK), Salvatore Ferragamo (SFER.MI), Hermes (HRMS.PA) and Burberry (BRBY.L) continue to report sales growth well above 10 percent.

“It would be wrong to extrapolate Gucci trends, or Louis Vuitton for that matter, to the overall industry,” HSBC luxury goods analyst Antoine Belge said.

“The repositioning of both brands towards less logo and more leather is working at full speed, but is a long-term process.”

Suffering from being seen as too ubiquitous, Gucci and Louis Vuitton are trying to strengthen their high-end offering with fewer logo-embossed goods and a greater variety of expensive leather bags.

“There is still some progress to be made regarding this repositioning. This transformation is not over yet,” Kering Chief Financial Officer Jean-Marc Duplaix told analysts about Gucci during a conference call.

Duplaix said no-logo handbags such as the Bamboo Shopper made up 55 percent of total Gucci leather goods sales against 35 percent in the third quarter of 2012, while the average handbag price was 10 percent higher.

Gucci is also cleaning up its wholesale distribution, particularly in countries such as the United States, Japan and Italy, and refurbishing and enlarging directly operated stores where it now makes 77 percent of total revenue.

“The performance of Gucci is due to a consumer environment in China that has become more negative and the brand’s move upmarket which has led to lower volumes of entry-price leather goods,” Duplaix told journalists in a conference call.

Analysts pointed to the strong performance of Kering’s other luxury brands in the third quarter with comparable sales at Bottega Veneta up 16 percent, up 12 percent at Yves Saint Laurent while at other brands together, including Stella McCartney and Alexander McQueen, they rose 9.4 percent.


Globally, Kering said the picture was mixed as Gucci’s like-for-like sales in China had dropped “in low single digits” during the third quarter and 2 percent in Western Europe, but they rose 10 percent in Japan and 3 percent in North America.

The group’s Puma (PUMG.DE) brand, which is in the middle of a restructuring and strategy revamp, saw quarterly revenue drop 0.8 percent on a like-for-like basis.

Separately, Kering said it was still in talks with potential buyers for its La Redoute mail order business. The group confirmed it would have to inject cash into the business before offloading it but declined to confirm a reported amount of 300 million euros.

“The capital increase is an element of discussion, it is too early to elaborate on that,” Duplaix said.

Duplaix said Kering expected to reach a deal before the end of the year and close the transaction in the first half of 2014.

Editing by James Regan and Anthony Barker

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