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THE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & LifestyleTHE BIZNOB – Global Business & Financial News – A Business Journal – Focus On Business Leaders, Technology – Enterpeneurship – Finance – Economy – Politics & Lifestyle

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Business

Gucci China and US declines cause a 7% decline in Kering sales.

Photo Credit: Bobby Yip Photo Credit: Bobby Yip
Photo Credit: Bobby Yip Photo Credit: Bobby Yip

Kering (PRTP.PA),(PRTP.PA), a French luxury goods conglomerate, saw its most valuable brand, Gucci, lose 7% of sales in the fourth quarter due to COVID-19 lockdowns in China and lower demand in the US due to the stronger dollar.

Kering shares rose 0.6% on Wednesday despite disappointing results.

Gucci’s revenue fell 14% to 2.73 billion euros ($2.92 billion) from the previous quarter, missing the consensus estimate of 11%.

The conglomerate, which includes Yves Saint Laurent, Bottega Veneta, and Balenciaga, expected a 3% drop in comparable sales.

Gucci’s CFO Jean-Marc Duplaix said 2022 “did not meet our expectations”.

Although, the company is confident it can turn the brand around in 2023.

Analysts said that other labels also posted lower-than-expected results, even though Gucci.

This accounts for most of Kering’s profits and revenues, was the only brand to report a sales decline.

According to JP Morgan analyst Chiara Battistini, North American performance was disappointing across the board. China was expectedly a major drag.

Kering’s fourth-quarter sales fell 15% in North America and 19% in Asia and the Pacific.

Rich Americans bought luxury goods abroad due to the strong dollar and weak euro.

Gucci sneakers performed poorly in this market.

However, analysts said that other labels also posted lower-than-forecast results, despite the fact that Gucci, which accounts for the bulk of Kering’s profits and revenues, was the only brand to post a fall in sales.

“While China was unsurprisingly a huge drag, we acknowledge that North America performance came in below our expectations at each and every brand,” said JP Morgan analyst Chiara Battistini.

According to Kering, fourth-quarter sales were down 15% in North America and 19% in Asia and the Pacific. The article claimed that the strong dollar and weak euro encouraged wealthy Americans to shop for luxury goods overseas, and it also claimed that aspirational Gucci products like sneakers fared poorly in Europe.

Battistini remarked that the report still raised some unanswered questions, such as how soon and at what cost a positive inflection will be seen at Gucci and whether Saint Laurent’s incredible growth might be starting to normalize.

Momentum loss

In January, Gucci announced that Sabato De Sarno, a lesser-known designer at competitor Valentino, would be taking over as creative director after the departure of Alessandro Michele in November.

Analysts expect De Sarno to take time to make his mark on the brand after his September debut.

Gucci has lagged behind Louis Vuitton and Hermes after a strong 2015–2019.

The label’s 2022 recurring operating profit was 3.73 billion euros, while Saint Laurent’s rose 43% to 1 billion euros.

After travel restrictions were lifted at the end of 2022, China’s start was “very encouraging,” according to Duplaix.

China’s lockdowns and abandonment of a zero-COVID policy have hurt the luxury industry.

Gucci reduced its marketing spending during the pandemic, while Louis Vuitton and Dior, two of its major competitor LVMH’s (LVMH.PA) most prominent brands, continued to invest heavily. That was crucial to the victory, according to experts.

Investors have ignored China’s poor performance.

Instead focusing on rising expectations for a robust recovery in the country, a major growth driver in recent years.

Kering has had a harder time because Gucci is more dependent on China than its competitors.

Gucci reduced marketing spending during the pandemic.

While LVMH’s (LVMH.PA) two biggest brands, Louis Vuitton and Dior, increased them.

Analysts said this helped them advance.

In the last quarter, Louis Vuitton and Dior’s LVMH fashion and leather goods division increased sales by 10%.

Duplaix stressed that Kering’s efforts at Gucci were long-term, with a focus on timeless fashions and higher-priced products.

As well as more marketing and collections.

 


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