PARIS — Gucci is on the comeback trail.
The maker of Jackie handbags and horsebit loafers posted a surprise sales increase in the second quarter, boosted by strong tourist-driven sales in Western Europe and Japan and markdowns in Asia.
After four consecutive quarters of declines, organic sales at the Italian brand rose 4.6 percent in the three months to June 30, largely exceeding consensus expectations for a 3.2 percent decline, according to Luca Sola, managing director at Exane BNP Paribas.
“We are particularly satisfied with the progress at Gucci and the positive reception given to the brand’s new creative direction,” said François-Henri Pinault, Kering’s chairman and chief executive officer.
However, Jean-François Palus, group managing director at Kering, cautioned that the performance of the brand — which accounts for more than a third of total revenues at Kering – was not yet due to the turnaround initiated under new chief executive officer Marco Bizzarri and creative director Alessandro Michele.
“While we are pleased with all the progress Gucci has made in such a short time and confident in its achievements, please do keep in mind that these initiatives will not show their full translation into our accounts until the back-end of this year and in 2016,” he said during a conference call.
Gucci will debut its refreshed store design at its Via Montenapoleone boutique in Milan this fall, with a total of 30 stores worldwide — representing around a third of total retail revenues – to follow. It is also planning collaborations with specialty stores, the first of which — Dover Street Market — was unveiled last week.
A fully redesigned Web site will be launched, starting with the United States in September, and new packaging will be introduced. Michele’s first full collection, cruise 2016, will hit stores toward the end of the year, although his quickly designed men’s wear collection will bow for fall.
The second-quarter sales bump at Gucci was driven by a 10 percent rise in retail sales. Sales in Gucci stores were up 19 percent in Japan and 20 percent in Western Europe. They increased by just 3 percent in Asia-Pacific, as Mainland Chinese consumers continued to curb their spending in Hong Kong and Macau.
Wholesale fell 19 percent in the second quarter as Gucci pursued efforts to prune its distribution network to ensure greater exclusivity and prevent the resurgence of parallel markets. The trend is expected to continue, though to a lesser extent, in the second half, according to Jean-Marc Duplaix, Kering’s chief financial officer.
Gucci’s operating profit margin fell 470 basis points to 26.8 percent in the first half of 2015 due to factors including hedging losses, an unfavorable geographic mix and higher store network operating costs.
Inventory write-offs and restructuring charges at Gucci, linked to collections designed by Michele’s predecessor Frida Giannini, were partly to blame for a drop in net profits at Kering. Group profits declined 13 percent to 489.2 million euros, or $541.1 million, in the first six months of 2015.
The French conglomerate said group sales jumped 22.8 percent in the second quarter to 2.86 billion euros, or $3.16 billion, also helped by strong performances at Bottega Veneta and Saint Laurent. Stripping out currency effects, sales were up 7.7 percent in the quarter.
However, Kering warned that currency swings will likely impact its margins in 2015. “In an economic environment that remains unsettled, the recent currency fluctuations are likely, at this stage, to have a favorable impact on sales, but could have mixed effects on the group’s results,” it said.
The figures come on the heels of Hermès International reporting last week that sales rose 9.7 percent in the second quarter, defying a drop in demand for luxury goods in Asia. LVMH Moët Hennessy Louis Vuitton is scheduled to publish first-half results on Tuesday.
Duplaix said there was no sign of improvement, or even stabilization, in Hong Kong and Macau in the second quarter, while Mainland China remained volatile due to the crises roiling its stock and real estate markets.
“Recent trends are not very encouraging in Hong Kong and Macau, so — so far — we don’t expect any improvement in the short-term,” he said.
“We are quite cautious as regards the trend in Mainland China, but we are quite confident as regards the Chinese cluster, when we see already in Q2 the shift of the Chinese tourists to some other regions,” Duplaix added.
Analysts caution that in the wake of pro-democracy protests that have disrupted tourist flows from Mainland China, Hong Kong is losing its luster as a luxury hub. Erwan Rambourg, analyst at HSBC, last week predicted that many top brands will close boutiques there in the next two or three years.
Duplaix said Kering was renegotiating rents in the territory and would pull out if landlords did not offer better terms. “If landlords are not able to understand that a revision of the rent is needed, then we will consider this option in the mid-term,” he said.
The group’s luxury activities saw revenues rise 24.6 percent to 2 billion euros, or $2.22 billion, in the second quarter. Meanwhile, the sport and lifestyle division registered an 18.6 percent increase to 841 million euros, or $930 million. All dollar rates are calculated at average exchange rates for the period concerned.
On a comparable basis, luxury was up 8 percent, while sport and lifestyle rose 7.1 percent, helped by a 7.5 percent increase at Puma.
Revenues at Bottega Veneta were up 9.3 percent on a comparable basis in the quarter to 339 million euros, or $375 million, as retail sales vaulted ahead by 52 percent in Western Europe and 27 percent in Japan.
Saint Laurent saw revenues grow by 27.3 percent on a comparable basis to 232 million euros, or $256 million. Sales in directly operated stores jumped 82 percent in Japan, 45 percent in Western Europe and 26 percent in North America.
Revenues at the group’s other luxury brands were up 6.4 percent on a comparable basis, with retail sales in the group of couture and leather goods brands including Balenciaga, Alexander McQueen and Stella McCartney up 22 percent during the three-month period.
While jewelry brands such as Boucheron, Pomellato Group and Qeelin all posted double-digit increases in the second quarter, watch brands including Girard-Perregaux and Ulysse Nardin continued to suffer from the impact of the Swiss franc appreciation and wholesaler destocking.
Earlier on Monday, Kering said it has appointed former Unilever executive Grita Loebsack as ceo of its luxury couture and leather goods’ emerging brands, giving her responsibility over Alexander McQueen, Balenciaga, Brioni, Christopher Kane, Stella McCartney and Tomas Maier.
The appointment will be effective Sept. 14, the group said. Loebsack, a German national, will report directly to Pinault and will be part of the group’s executive committee. The ceos of the six companies in the emerging brands group will report to her.
The reorganization follows the reshuffle that saw Bizzarri, formerly ceo of Kering’s luxury couture and leather goods division, take over as ceo of Gucci, effective Jan. 1. Pinault, who had taken on the role in the interim, will continue to supervise Gucci as well as retaining responsibility for Bottega Veneta and Saint Laurent.
This means Kering’s management structure will mirror more closely the way its results are reported, with emerging brands grouped into the “other brands” division — along with jewelry and watch brands — while the top three brands break out figures separately.
“The expansion of the group’s luxury activities will continue to be carried out with full respect for the autonomy of each brand, which will remain under the operational responsibility of their respective ceos,” Kering said.