Gucci Spring 2017

PARISKering said it was confident of maintaining the momentum at its cash-cow Gucci brand after it helped propel a rise of 11.3 percent in the French conglomerate’s luxury activities in the third quarter — the segment’s highest quarterly organic sales growth rate in three years.

Gucci, which accounts for nearly two-thirds of Kering’s operating profit, continued to reap the benefits of the turnaround plan launched last year by its creative director Alessandro Michele and chief executive officer Marco Bizzarri to deliver a market-beating performance.

In third-quarter results released after the market close, the brand saw organic revenues increase 17 percent, boosted by the success of signature products like GG Marmont and Dionysus handbags, pearl-studded loafers and lamé pleated skirts.

Jean-Marc Duplaix, chief financial officer of Kering, said that although comparatives would become tougher from the fourth quarter, he was confident that Bizzarri would deliver on his objectives.

“We are very satisfied with Gucci’s performance, but also highly confident in its ability to continue gaining market share as the foundations we are building are solid. Collection after collection, the response is enthusiastic,” Duplaix said in a conference call with analysts on Tuesday evening.

“Current trading is very encouraging so far,” he added. “We remain very positive about the perspectives for the brand for next year.”

At an investor day in London in June, Bizzarri said he planned to grow the brand by more than double the market average in the medium-term. He expects it to post sales of six billion euros, or $6.5 billion at current exchange, in the long-term, compared with 3.9 billion euros, or $4.3 billion, in 2015.

Duplaix noted that store productivity had increased faster than expected. Michele’s designs now account for more than 80 percent of the product offer and he is behind six of the brand’s seven best-selling bag lines, he added, noting that the Soho range will be discontinued.

“We see an acceleration of the sale of handbags in all regions with all clusters, so that is very positive, but as you know we have not completely finalized the revamping of the offer in the other subcategories — so travel and lifestyle and small leather goods — in which the growth was not at the same level, so it means that there is still additional potential for growth in leather goods,” he noted.

Gucci’s retail sales were up 19 percent in the three months to Sept. 30, while wholesale revenues rose 9 percent. E-commerce sales were up 57 percent in constant currency terms, with high double-digit growth in all regions.

The brand rolled out its revamped web site in South Korea and Japan in the third quarter and engaged visitors with initiatives such as the “Gucci 4 Rooms” project, in which four artists were invited to create virtual and real spaces reflecting the spirit of the house.

“Each time we roll out the platform, we see an immediate impact in terms of growth of traffic and conversion. What is noticeable probably is the acceleration also of the sales deriving from mobile,” Duplaix said.

The strong performance of the luxury division helped propel Kering’s overall revenues up 10 percent in the third quarter to 3.18 billion euros, or $3.54 billion. Sales rose 10.5 percent in organic terms during the three-month period, up from 6.9 percent in the second quarter and 4 percent in the first quarter.

François-Henri Pinault, chairman and ceo of Kering, said: “Our excellent sales in the third quarter underscore the relevance of our strategy and the effectiveness of its execution. In a complex environment, we stepped up the pace of revenue growth and continued to gain market share.”

All regions posted double-digit comparable growth, except for Japan, which suffered from a high comparison basis and a strong currency that deterred tourists. “We have laid the foundations for steady, sustainable growth, and are highly confident about the full year,” Pinault said.

Saint Laurent was up 33.9 percent during the period, thanks to the continued popularity of its permanent collections and good response to new handbag models such as the Sunset Monogram. Retail sales were up 34 percent and wholesale revenues gained 36 percent.

Duplaix said industry response to Anthony Vaccarello’s debut collection for the label in September was “excellent” and he anticipated a smoother handover than when Hedi Slimane succeeded Stefano Pilati as creative director in 2012.

Revenue progression for the group’s other luxury brands was in line with the second quarter. Balenciaga, Stella McCartney and Alexander McQueen each posted growth of around 10 percent or more, while Bottega Veneta saw sales drop 10.9 percent as it continued to struggle with slower tourism flows.

The brand is one of several in flux as Kering continues to implement a wide-ranging reshuffle in its management and design ranks, which continued this week with the appointment of Cédric Charbit as ceo of Balenciaga.

The group last month announced Claus Dietrich Lahrs, former ceo of Hugo Boss, would succeed Carlo Alberto Beretta at the helm of Bottega Veneta. Duplaix said Lahrs would step up the execution of the turnaround plan put in place by his predecessor.

“We can expect some growth from next year, but it will be very progressive. It will be revved up probably more during the second half of 2017,” he said.

Kering’s sport and lifestyle division registered a 9.3 percent rise in organic sales in the three months ended Sept. 30, with Puma posting a 10.8 percent increase, thanks in part to the success of its ongoing collaboration with Rihanna.

“It does not get better than this for Gucci and Saint Laurent,” Rogerio Fujimori, analyst at RBC Capital Markets, said in a research note. “For the luxury sector, this is another example of current trading picking up as we get closer to the key festive season.”

Thomas Chauvet, analyst at Citi, noted the jump in Kering’s luxury sales exceeded consensus expectations for a 6 percent rise and called it “a very positive signal” for the holiday season and second-half earnings. “We were surprised by the magnitude of the sales beat,” he said.

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