Backstage at Gucci RTW Fall 2017

PARIS — Kering is proving that even a $5 billion brand can deliver record results.

Defying conventional wisdom that mature brands reach a plateau at a certain point in their cycle, Gucci posted its strongest revenue increase in 20 years, with organic sales in the first quarter vaulting up 48.3 percent to 1.35 billion euros, or $1.44 billion.

That, and another strong performance from Saint Laurent, helped parent company Kering register a 31.2 percent jump in revenues during the period, providing further evidence of a rebound in luxury sales amid signs of a recovery in Chinese demand.

Group sales totaled 3.57 billion euros, or $3.81 million, in the three months to March 31, with the French conglomerate reporting double-digit growth across all activities and all geographic regions, excluding Japan. In organic terms, revenues were up 28.6 percent.

“Kering achieved a record performance in the first three months of the year, posting a sharp acceleration in sales growth,” said François-Henri Pinault, chairman and chief executive officer.

“In a climate of persistent geopolitical and macroeconomic uncertainties, our first quarter puts us in a particularly good position for the balance of the year,” he added.

The figures come on the heels of a 15 percent rise in revenues at LVMH Moët Hennessy Louis Vuitton in the first quarter. Burberry, meanwhile, reported total revenue rose 14 percent in the six months ended March 31.

“We were expecting Kering to likely produce a beat versus sell-side expectations in the same vein as LVMH, but plus-28.6 percent versus plus-13.3 percent is a first as far as experience of beats goes,” said Luca Solca, head of luxury goods at Exane BNP Paribas.

“We expect this is beyond the rosiest buy-side expectations, and should push the share price to new heights as a consequence,” he added.

Jean-Marc Duplaix, Kering’s chief financial officer, said Gucci was on track to deliver its medium-term objectives sooner than expected, but said the brand still had plenty of room to grow.

He predicted its earnings before interests and taxes margin would hit 30 percent this year, but added that Kering wanted to increase the margin progressively. Planned investments this year include the launch of e-commerce in China, digital communications and additional store refurbishments.

“We are ahead of schedule in terms of achievement of the objectives we had set together with Gucci,” he told analysts and reporters on a conference call.

“But there are still many KPIs where we need to make some progress and the teams are working on that at Gucci. That’s the reason why we consider that, because also of the creative momentum, there is still room for expansion at Gucci and we have not yet reached the peak,” he added.

Gucci, which accounts for more than a third of Kering’s revenues, has undergone a reinvention at the hands of creative director Alessandro Michele and ceo Marco Bizzarri.

In the first quarter, it registered double-digit growth for all product categories, with a sharp acceleration in full-price sales. Sales in directly operated stores were up 51.4 percent on a comparable basis, with Western Europe posting a 66.4 percent increase, and the Asia-Pacific region registering a 63.1 percent uptick.

The brand did well across the board, appealing to local customers and tourists, Millennials and other age groups. Duplaix said comparisons would get tougher in the coming quarters, noting that Gucci has completed its transition to the geek-chic aesthetic introduced by Michele following his appointment in 2015.

“We won’t benefit anymore from the boost we had with the introduction of the new styles in all categories, so now we have to rely on the creativity of Alessandro,” said Duplaix.

“Looking at the evolution of the sell-through and also considering the wholesale orders we have, I think we can be confident for the remainder of the year, but…we should see a normalization of the growth going forward,” he added.

However, he said there was room for improved performances from divisions including eyewear, after Kering took the license in-house on Jan. 1, as well as fragrance royalties, with the planned launch this year of the first perfume created with Coty under Michele’s creative direction.

The luxury division as a whole — which includes brands such as Yves Saint Laurent, Bottega Veneta, Stella McCartney, Boucheron and Brioni — saw revenues increase 31.6 percent in organic terms. The sports and lifestyle division, which revolves around Puma, posted a 14 percent rise.

Saint Laurent delivered another strong quarter, with sales up 33.4 percent on a comparable basis. The first collection designed by Anthony Vaccarello hit stores in January and has been “extremely well received,” the group said, reporting that some women’s ready-to-wear and shoe designs achieved bestseller status.

Bottega Veneta posted a 2.3 percent rise in organic sales, after a drop of 9.4 percent in the fourth quarter of 2016, helped by the general improvement in the luxury environment. Sales in directly operated stores rose 3.6 percent on a comparable basis, with women’s shoes, in particular, driving demand.

Revenues from the group’s other luxury brands rose 11.1 percent. Couture and leather goods houses posted an aggregate revenue rise of 11.1 percent, fueled by the “excellent” performance of Balenciaga’s directly operated stores, reflecting strong demand for Demna Gvasalia’s collections.

Stella McCartney and Alexander McQueen achieved growth, while Brioni’s sales in directly operated stores improved, helped by a return of Russian customers to Europe. Solid performances from Boucheron and Pomellato helped drive a 13.1 percent rise in revenue from watches and jewelry houses.

“There is clearly an improvement in the soft luxury market, even if we can see that it’s not necessarily the case for all the brands and all the players, so for the big brands there is clearly an opportunity to capture the growth with the Chinese cluster, but also with the local customers in the mature markets,” said Duplaix.

“But the fact is that Gucci is overperforming the market because of all the initiatives and all the work done by the Gucci teams,” he added.

Kering Eyewear, whose revenues were consolidated for the first time, registered sales of 112.9 million euros, or $120.3 million, before elimination of intra-group sales and royalties received by brands. Net revenue for the period totaled 85.5 million, or $91.1 million.

Organic sales at Puma rose 15.3 percent in the first quarter, with quarterly sales surpassing one billion euros, or $1.1 billion, for the first time in the company’s history. Celebrity ambassador-backed styles drove the German sporting goods firm’s core footwear sales.

Puma ceo Bjørn Gulden cited the Fierce, Basket Heart and Limitless lines — backed respectively by campaigns starring Kylie Jenner, Cara Delevingne and The Weeknd — among top sells in the first quarter.

“It’s the strongest quarter in retail that we’ve had since I started. The sell-through of new [styles] has been so strong that we have been out of stock on certain units,” he said on an earlier conference call on Tuesday.

In order to keep up with demand, the firm has had to pull forward some of its deliveries meant for the second quarter. “The retailers ordered more because they needed more, which has probably not been the case for Puma for a long time,” Gulden said.

The “brand heat,” he said, continues to come from the non-performance category, with ath-leisure still the most popular direction for women’s, and retro styles like the Clyde and Suede for men’s.

Gulden declined to comment on speculation that Kering is looking to off-load Puma, a rumor that fizzed earlier this month following the announcement that Pinault was stepping down from Puma’s board.

The company plans to continue investing heavily in marketing, he said, with “almost all marketing that we do from a media point of view now digital.” Digital platforms have been implemented in almost all of the brand’s markets, with a rollout under way in Asia, he said.

Puma SE reported net profit advanced 92.2 percent in the first quarter of 2016 versus the same prior-year period. The German sporting goods maker’s net earnings reached 49.6 million euros, or $52.8 million, in the three months ended March 31.

Meanwhile, its gross margin — a key indicator of profitability — gained 30 basis points to 47.1 percent from 46.8 percent. EBIT rose 70.1 percent to 70.2 million euros, or $75 million. Revenues rose 18 percent, driven by all regions, which posted double-digit gains.

Puma saw a 17 percent increase in sales in the Americas region. In Europe, all markets were up except for Italy, with strong sales in France, the U.K. and Germany. In Asia, the brand saw “very strong gains” in China and “for the first time in a long time” strong gains in Korea.

The only soft spot was Japan, “where we changed management in the beginning the year and are going through a repositioning.”

As reported, Puma’s full-year EBIT are now anticipated to fall between 185 million euros and 200 million euros, or $196.1 million and $212 million, up from the previous guidance of 170 million euros to 190 million euros, or $180.2 million to $201.4 million.

Dollar figures are converted at average exchange for the period to which they refer.