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Kering Feels Luxury’s Slowdown

The parent of Gucci and Bottega Veneta on Thursday reported sales in its luxury division climbed 4.5 percent in the three months ended March 31.

PARIS — Weakening demand in China and a sluggish Europe continue to rain on luxury’s parade, with France’s Kering the latest big player to report single-digit gains in the first quarter.

This story first appeared in the April 26, 2013 issue of WWD.  Subscribe Today.

Kering, the parent of Gucci and Bottega Veneta that was previously known as PPR, on Thursday reported sales in its luxury division climbed 4.5 percent in the three months ended March 31 — a steep deceleration from the 21.2 percent gain registered in the fourth quarter.

Luxury revenues in the first quarter totaled 1.52 billion euros, or $2.01 billion, compared to 1.46 billion euros, or $1.91 billion, in the year-ago quarter. Stripping out the impact of acquisitions and currency fluctuations, the increase stood at 6.4 percent.

 

Investors frowned on the poor results, sending shares of the company down 6 percent in morning trading Friday on the Paris Bourse.

 

During a conference call, chief financial officer Jean-Marc Duplaix said Greater China is far less buoyant than in recent years, dragged down by Taiwan and Korea, adding that he did not detect any signs of a pickup in the region. Mainland China registered a 10 percent increase in luxury sales in the quarter, he noted.

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Duplaix trumpeted that Gucci continues to sell more upscale leather goods in Asia, with non-logo bags now accounting for more than 30 percent of sales in Korea, versus 9 percent two years ago, for example.

He also said Gucci would slow down the pace of openings in China to “safeguard the exclusivity of the brand.”

In Europe, market conditions deteriorated in the second half of the first quarter, dampening consumption of fashions and accessories.

By contrast, the U.S. “remains quite sound and we don’t see why it should change,” Duplaix said. There is one exception: Sales in Hawaii are less robust as Japanese tourists spend more at home, driven to do so by a weakening of the yen, he noted.

In Kering’s luxury division, sales improved 3 percent in Western Europe, 6 percent in Asia-Pacific, 8 percent in North America, 10 percent in Japan and 15 percent in other countries.

Revenues at flagship brand Gucci climbed 2.1 percent in the three months ended March 31. Only Yves Saint Laurent, now under the creative direction of Hedi Slimane, posted a double-digit gain, with revenues up 16.9 percent.

Duplaix said the initial results of Slimane’s new design direction “confirm its strong momentum” despite late deliveries of spring merchandise, particularly in its directly operated stores.

The company highlighted “significant growth” of men’s ready-to-wear at Saint Laurent along with “higher sales of iconic handbags and a promising start for new shoe  styles.”

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As a whole, sales of fashion and leather goods gained 7 percent in the quarter.

Duplaix described a contrasting picture for “other brands,” with gains in excess of 20 percent at Boucheron, Stella McCartney and Alexander McQueen offsetting weakness at Sergio Rossi and the Swiss watch brands Girard-Perregaux and JeanRichard.

Sales for the group, whose holdings range from Brioni to Puma, advanced 1 percent in the quarter to 2.37 billion, or $3.12 billion, from 2.34 billion, or $3.07 billion.

Dollar figures are converted from euros at average exchange rates for the periods to which they refer.

François-Henri Pinault, Kering chairman and chief executive officer, cited a high basis for comparison for luxury, up 18 percent in the same period last year, and blamed a “jumpier environment, notably in Europe,” for a 4.9 percent decline in its nascent sport and lifestyle division.

Managing director Jean-François Palus noted that Europe accounts for about one third of revenues in the sport and lifestyle division, and said that the appointment last week of Pandora’s Björn Gulden, once a professional soccer player, “marks the start of a new offensive for the brand.”

Kering’s results dovetail with slowing revenues at other luxury players, which face strong currency headwinds, withering demand in Asia and a lackluster European economy.

As reported, first-quarter sales at Hermès International rose 12.8 percent, the firm’s slowest pace since 2008, while LVMH Moët Hennessy Louis Vuitton said revenues rose 5.5 percent in the first three months of the year as the Asian juggernaut lost steam.

Burberry said revenues in its fiscal fourth quarter ended March 31 climbed 11 percent, while Compagnie Financière Richemont in January said fiscal third-quarter sales rose 9.3 percent.