(BFM Bourse) – The luxury group suffered at the end of 2022, with a 7% drop in sales on a like-for-like basis in the fourth quarter, and a 14% plunge for Gucci. Recognizing the poor performance of its flagship brand, François Henri-Pinault assured that the group was preparing to “correct” the trend.
The comparison is hard for Kering. While LVMH continued its insolent growth at the end of 2022, with a last quarter up 9% excluding currency and scope effects, Gucci’s parent company stalled.
In the quarter from October to December, Kering saw its turnover fall by 7% over one year on a comparable basis, weighed down by the poor performance of its flagship brand Gucci, which fell by 14%. Remember that the Italian label represents more than half of Kering’s sales and around three quarters of its current operating profit.
Analysts had anticipated a weak year-end for the group, but not to this extent. According to Royal Bank of Canada, their consensus predicted a drop in the group’s turnover of only 3% on a like-for-like basis, with a drop of 12% for Gucci. “The good news with the fourth quarter is that it is behind us,” comments Stifel.
Regaining confidence in Balenciaga
“The group will still have been penalized by the restrictions in China despite the lifting at the end of the quarter, by a less attractive collection at Gucci which bears the trace of a designer who was about to leave, slow growth at Yves Saint Laurent and , the setbacks of Balenciaga”, underlines TP ICAP Midcap.
Balenciaga’s reputation was tainted by a controversy at the end of November. The brand had been accused of sexualizing children in a campaign. This had led the artistic director, Demna Gvasalia, to apologize. The group’s CEO, François-Henri Pinault, renewed the apology on Wednesday during a conference with analysts, citing a “clear error in judgment”. The leader assured that the group had in particular carried out a broad review of its procedures with external consultants to prevent such an oddity from happening again and declared to be “determined” to regain the trust of customers.
In terms of its sales, the impact on Kering is not directly observable, as the company does not detail Balenciaga’s revenues. But the “Other Houses” division, in which the label founded by Cristobal Balenciaga appears, saw its revenues fall by 4% like-for-like, while analysts had forecast an increase of 5%. CFO Jean-Marc Dupleix said the controversy had “penalized the trend” of the brand in December. Deputy CEO Jean-François Palus said the impact of the controversy was waning and should fade in the second quarter of 2023.
A stock market reversal
Over the whole of 2022, Kering saw its revenues increase by 9% like-for-like to reach 20.35 billion euros. Its current operating profit increased by 11% to 5.59 billion euros, but the corresponding margin fell to 27.5% against 28.4% in 2021. Net profit increased by 14% to settle to 3.61 billion euros.
“Kering’s results are not unworthy in absolute terms, but the comparison with the other luxury majors is not to the advantage of the owner of the leading Italian fashion and leather goods brand, Gucci, whose performance weighed on the greater part of the year on the formation of the figures of the whole”, summarizes Invest Securities.
On the Paris Stock Exchange, the Kering share opened sharply lower (-4%) before turning around to take 3.4% around 11 a.m., in an enthusiastic market, the CAC 40 taking 1% at the same time. “The market understood following the conference with the leaders that the reopening of China would allow the group to grow in the first half, which was not expected, and that the artistic transition underway at Gucci would not have a significant dilutive impact on margins,” said a financial intermediary. “But this rebound can be very short-term,” he warns.
Sabato De Sarno as catalyst
During this conference, François-Henri Pinault did not hide his dissatisfaction, acknowledging to analysts that Gucci’s results were “disappointing”, and that the Italian brand was not evolving “at the top of its game”, which that he intends to “correct”. Relaunching the brand this year is the company’s “highest priority”.
Gucci’s artistic direction has been revamped. Alessandro Michele left the creative direction in November. At the end of January, Sabato de Sarno, a defector from Valentino, was appointed artistic director, with a first collection expected during Milan fashion week in September. François-Henri Pinault explained that his desire to “elevate” the brand required a new “mastermind” (conductor). Sabato de Sarno “will bring its creative vision” and “embrace the heritage of Gucci” to “bring it into modernity”, explained François-Henri Pinault.
Sabato De Sarno’s first show in September “could be a potential catalyst for the title, with investors likely focusing on the reception of its new collections by retailers, the buzz generated on social media until the arrival of its collections in stores in early 2024”, considers Stifel.
Julien Marion – ©2023 BFM Bourse
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