PARIS — After a worrisome wobble in the third quarter of 2021, Gucci showed signs of improvement in the fourth quarter, giving parent Kering confidence there is plenty of potential to expand its star brand further in upscale product segments, and in promising growth areas like men’s.
“We have a very strong pipeline for this year again, and this will support the growth of Gucci,” said François-Henri Pinault, chairman and chief executive officer of Kering, sounding the first of many bullish notes as the French group reported a 31.9 percent jump in revenues in the fourth quarter, a 25 percent improvement over 2019.
The luxury titan also talked up Saint Laurent as luxury’s next mega brand, with the potential to drive further upscale, eventually expand into fizzy categories like fine jewelry, and enlarge its men’s universe. “It is highly underestimated, but it’s a brand that is far from being mature in some areas in the world,” he said, mentioning China and the U.S. as examples.
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Saint Laurent logged a “record performance” in 2021, with revenues vaulting 45.6 percent to 2.52 billion euros. Bottega Veneta surpassed the 1.5 billion-euro revenue threshold.
The conglomerate also touted “excellent performances” at Balenciaga and Alexander McQueen, which are included in its “other houses.” This division saw revenues rise 43.8 percent to 3.26 billion euros.
Recurring net income at Kering improved 70.4 percent to 3.36 billion euros on revenues of 17.65 billion euros in 2021. Recurring operating income jumped 60 percent, representing a 4.5 percent bump in margin.
“We are firing on all cylinders and all our houses contributed to the strong performance,” Pinault told analysts on a webcast Thursday morning. “We are very confident in our ability to deliver another strong year.”
Carole Madjo, luxury analyst at Barclays, said the numbers and the remarks about Gucci were “very encouraging.”
“The brand is currently seeing very strong trends, similar to fourth-quarter trading, which bodes well for first quarter,” she said in a research note, adding that comments around the margin profile of Gucci, which is gradually improving, were in line with market expectations.
While Alessandro Michele’s runway fireworks have helped propel the brand’s notoriety in recent years, Pinault said historic codes, iconic handbags and craftsmanship are now being amplified and added to the mix for a “blend of heritage and innovation.”
He trumpeted strong consumer reaction to Gucci’s Diana and Bamboo 1947 bags, and cited a “significantly higher” average selling price that kicked off with the Aria collection, which debuted a more elevated approach that will continue in 2022.
In 2021, Gucci revenues tallied 9.73 billion euros, just shy of its oft-stated goal of 10 billion euros.
Sales at Gucci had slowed in the third quarter, rising only 3.8 percent, as a resurgence in coronavirus cases last summer impacted business in Asia, while consumers held back on making purchases in expectation of the Aria collection, which included a “hacking project” with Balenciaga, landing in stores in late September.
By region, Kering revenues in the fourth quarter bounded 63 percent in North America, 59 percent in Western Europe, 33 percent in Japan and 18 percent in Asia Pacific. The “rest of the world” category vaulted 48 percent, fueled by the Middle East.
Responding to analyst queries, group managing director Jean-François Palus painted a bright picture for Kering in the U.S., “still a young luxury market” and one currently characterized by high consumer confidence, accumulated savings, strong employment and wage growth.
In particular, Kering spies potential in second- and third-tier cities to open more retail stores, tapping into pockets of wealth in places like Charlotte, N.C.; Atlanta; Nashville, Tenn, and Austin, Texas, where Gucci is slated to open a boutique in April.
Palus said Kering is also “very confident with China,” citing a wealth of new luxury consumers, potential to leverage the capacity of Tmall as a showcase for its brands, and runway with retail stores, particularly with brands that are a bit late to the party, including Brioni, Boucheron and Pomellato.
Given Kering’s free-cash flow doubling to 3.95 billion euros in 2021, and debts whittled down to 168 million euros, analysts inquired about the group’s M&A intentions.
While touting five years of 18 percent retail growth with its existing portfolio of brands, Pinault said the group is “closely monitoring” the market for any possible acquisition that “makes sense for us,” he said. “We are very active looking at opportunities as our portfolio is not yet perfect.”
Kering sold off the Girard-Perregaux and Ulysse Nardin brands to their current management last month, with Palus characterizing that development as “consistent with our strategy that gives priority to houses that have potential to become sizable,” adding that the group plans to focus on ready-to-wear, leather goods, accessories and jewelry.
During a briefing with journalists, Pinault could not be pinned down on the timing or extent of any forthcoming price increases, poised to become a key feature of 2022 as rising material, transport and logistics costs prompt brands like Chanel and Louis Vuitton to hike prices of key handbags. Gucci raised prices twice in 2021.
Rather, he described an effort to make collections more sophisticated and high-end, driving average prices northward, and finding “reasonable” price differentials between various regions of the world. “It’s a delicate balance between volume and value.”
The executive noted all of Kering’s brands have potential to expand their product universe, with McQueen recently gaining “legitimacy in daywear and leisurewear,” and not only special-occasion dressing, and Balenciaga logging fast growth in leather goods and entering the couture arena. “It’s not just about sneakers,” he stressed.
Quizzed about Kering’s intentions for the metaverse, Pinault described a “test and learn” approach, versus a “wait-and-see” one, with innovation teams being built or up and running at the group level, at Gucci, and at Balenciaga, which has already sold skins on Fortnite.
“We are very active. We will see if it is justified or not,” he said.
The company gave no specific guidance for its fashion and jewelry houses in 2022 other than to “achieve same-store revenue growth while ensuring the targeted and selective expansion of their retail networks.”
The group operates 1,565 retail stores and continues to wean itself off the wholesale channel, and internalize e-commerce operations, with Balenciaga and Bottega Veneta integrated last year. Retail sales generated 81 percent of 2021 revenues at Kering, and Gucci whittled its wholesale business down to 9 percent.
Fifteen percent of revenues came from the e-commerce channel, a leap from 7 percent in 2019.
In a release, Kering cited a strong rebound from the pandemic downturn in 2020, “driven by consumer appetite for premium goods. Kering is perfectly positioned to fully benefit from this upturn.”
Pinault noted the group would table an employee share ownership plan at a board meeting in March, and host its first in-person investor day before the summer.
The results confirm auspicious times for Europe’s luxury giants.
Fourth-quarter revenues at LVMH Moët Hennessy Louis Vuitton totaled 20 billion euros, up 22 percent in organic terms versus 2019, with the fashion and leather goods division logging organic growth of 51 percent, reflecting the strength of marquee brands Louis Vuitton and Dior.
Compagnie Financière Richemont reported that revenues in the three months to Dec. 31 jumped 38 percent at constant currency rates versus the same period two years earlier.
Hermès International is to report its fourth-quarter and full-year tallies on Friday.
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