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Sales at Kering fell sharply in the third quarter as a global slowdown in luxury spending hindered the Paris-based group’s efforts to reboot its Gucci brand.
Revenues fell 13 per cent to €4.46bn in the quarter, a steeper drop than the 11.4 per cent decline analysts expected.
Sales at Gucci and Saint Laurent, Kering’s two biggest brands, fell 14 and 16 per cent respectively. Gucci’s new designer, Sabato de Sarno, unveiled his first collection at the end of September, which Kering hopes will revive flagging sales at its biggest profit engine. However, that collection will not arrive in stores until early next year.
Gucci’s momentum has been stalling for the past three years while rivals such as Dior and Louis Vuitton, owned by LVMH group, have taken off. However, some of Kering’s smaller brands that had been growing steadily, as in Bottega Veneta and Saint Laurent, also face a slowdown. Balenciaga has yet to shake off the fallout of a botched advertising campaign that punctured its sales in the US and Europe.
Kering reorganised its top management and announced several acquisitions, including a roughly €3.5bn deal to buy high end perfumer Creed, over the summer to reignite growth.
Jean-François Palus, a longtime Kering executive close to group chief executive François-Henri Pinault, has been dispatched on a temporary basis to oversee the turnaround at Gucci, while Yves Saint Laurent chief executive Francesca Bellettini was promoted to take on the role of co-deputy chief executive overseeing brands across the group.
Jean-Marc Duplaix, deputy chief executive, on Tuesday said: “We are confident we have the right organisation in place to regain momentum and market positions.”
He added that earlier targets for growth in profit margins for this year at Gucci, which accounted for two-thirds of the group’s profits last year, were now unlikely to be achieved and margins would remain under pressure next year as the group spends to reboot its brands.
Duplaix said: “We were betting on mid-single digit growth, and you can guess given the performance in [third quarter] and what is happening in the market, this won’t be the case. We expect dilution of the [earnings before interest and taxes] margin for the full year compared to last year.”
Kering is also in the process of cutting its wholesale distribution network to achieve greater control over pricing, a project that has dragged on sales, particularly in the US, but that is expected to be largely completed in 2024.
The luxury industry is coming off a three-year global boom that set records for sales and profits at many of the industry’s biggest names. Kering, however, did not benefit from the surge in sales as much as rivals such as LVMH and Hermès.
The pair have reported softer numbers in the most recent quarter, but Kering’s decline is far more marked than the other two groups which continued to grow their sales.
“We remain cautious on Kering’s turnaround story as it remains to be seen whether key brand Gucci will be able to successfully relaunch brand momentum through its new aesthetic,” analysts at Barclays noted earlier this month as they cut their full-year targets.
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