PARIS — Another quarter of spectacular growth at Gucci left analysts and shareholders wondering how much longer the Italian label can keep up its market-beating performance. But parent company Kering is confident its cash-cow brand will continue to deliver double-digit growth in 2018.The maker of Dionysus handbags and $590 logo T-shirts maintained its strong momentum under creative director Alessandro Michele, with organic sales rising 42.6 percent in the three months to Dec. 31 to 1.82 billion euros, beating market expectations.In 2017 as a whole, Gucci topped 6 billion in sales for the first time, a figure that its chief executive officer Marco Bizzarri, at an investor day in June 2016, had touted as a long-term target that was considered ambitious at the time.François-Henri Pinault, chairman and ceo of Kering, declined to set a new revenue bar for the brand, but said he expects the house to keep powering its parent company as Kering completes its transition to a pure luxury player following the planned distribution this year of the bulk of its shares in German sporting goods firm Puma.“Today, Gucci’s growth is extremely healthy,” Pinault told a press conference at the group’s headquarters here. “The brand has a much bigger potential than we estimated, that’s for sure, but we are going to build it slowly and steadily. There’s no sense in rushing.”Pinault said he was confident about the development of the label, since every product category and geographic region contributed to its progression in 2017.The executive said Gucci was on track to achieve double-digit growth this year, and while he stopped short of predicting that it will eventually topple Louis Vuitton as the world’s biggest luxury brand, he was clear about his ambitions for Kering, which also logged strong performances at the Yves Saint Laurent and Balenciaga labels last year.“In 2017, we achieved things that would have been unthinkable just a few years ago,” he said. “This is the year of our confirmation as the number-two global luxury group, and today our vision of luxury is influencing the whole industry.”Pinault said he expected Kering’s luxury brands to grow faster than the industry average this year, citing a Bain & Company estimate of 6 percent to 7 percent.“Our ambition is to be the world’s most influential and innovative luxury group in terms of creative audacity, in terms of social and environmental responsibility, and in terms of economic performance,” he said.Kering — whose stable also includes Bottega Veneta, Boucheron and Alexander McQueen, among others — posted sales of 15.5 billion euros in 2017, up 27.2 percent on a comparable basis. In the fourth quarter, revenues rose 27.4 percent in organic terms to 4.26 billion euros.Reporting full-year results before the market opening, the group said it registered net income of 1.78 billion euros in 2017, up 119.5 percent year-on-year. Recurring operating profit rose 56.3 percent to a record high of 2.95 billion euros.Pinault noted Kering created more than 3 billion euros in additional revenues in a single year, and generated more than a billion in additional earnings before interest and tax.Rival French conglomerate LVMH Moët Hennessy Louis Vuitton last month reported record results for 2017, with net profit jumping 29 percent to break the threshold of 5 billion euros.Kering said it will propose a dividend of 6 euros per share for 2017, up 30 percent compared with the previous year. It will also ask shareholders at the annual general meeting on April 26 to approve an exceptional distribution in kind of one Puma share for 12 Kering shares held.Despite the strong results, Kering shares closed down 4 percent at 365.00 euros on the Paris Stock Exchange on Tuesday, with some traders pointing to comments by the group’s chief financial officer, Jean-Marc Duplaix, noting that currency swings had a negative impact on revenues in the second half of 2017 and may lead brands to raise their prices.“Kering seems to be running thin of positive surprises, as we peer into 2018,” Luca Solca, managing director at Exane BNP Paribas, said in a research note.Rogerio Fujimori, luxury analyst at RBC Capital Markets, said Kering’s stock price should benefit from a more focused luxury brand portfolio once the Puma spin-off is completed. But he cautioned, “While we continue to view Kering as a core luxury holding, inevitable growth normalization for Gucci, gradual pace of recovery for Bottega Veneta and relatively higher expectations than peers may cap the shares this year.”Revenues generated by Kering’s luxury activities passed the 10-billion-euro mark for the first time in 2017, with the division posting growth of 29.9 percent at comparable rates. Online sales in that segment rose 73 percent year-on-year.Overall spending by Chinese, European and North American customers was up 40 percent in 2017 and maintained very strong momentum in the fourth quarter, despite high comparison rates, according to Duplaix.Saint Laurent recorded revenue growth of 25.3 percent in organic terms, marking the seventh consecutive year of growth above 20 percent. In the fourth quarter, the house’s sales rose 22.9 percent at comparable rates.Pinault confirmed he expects the brand to achieve revenues of 2 billion euros to 3 billion euros in the medium-term, versus 1.5 billion euros in 2017. To that end, Kering will invest in expanding Saint Laurent’s store network from 180 locations at present.While the group does not break out figures for Balenciaga, Pinault said it delivered the fastest growth rate of all group brands in the second half, with sales rising 40 percent in the year as a whole and 60 percent in the fourth quarter. The label is aiming for revenues of 1 billion euros in the medium-term.“Balenciaga’s potential is gigantic, namely in leather goods and accessories,” he said. Nonetheless, Kering has been careful not to make the brand too dependent on hit items such as its Triple S sneaker, he added.“For sure, with the success of the brand, we could grow extremely fast. That would be very dangerous,” he said. “You have to build something very healthy and solid, and to preserve the exclusivity of our brands.”Bottega Veneta, which is in the midst of a turnaround, grew 4.7 percent in organic terms in the fourth quarter, which Pinault saw as “encouraging” for 2018. The brand recently opened a flagship on Madison Avenue in New York and will unveil another in Tokyo’s Ginza district at the end of the year in a bid to raise its visibility.The company will also renovate 30 stores out of its network of 270 and enrich its offer of small leather goods to entice Millennial consumers, Pinault said. “We are quite confident that Bottega Veneta will return to a normal growth rhythm this year,” he added.Kering also touted the potential of McQueen, which is investing in store expansion and integrating new communications tools as part of its growth plans, and jeweler Boucheron, which celebrates its 160th anniversary this year.But Gucci remains the uncontested jewel in Kering’s crown, fueled by a strong presence on social media. Pinault noted the number of its followers on Instagram rose 70 percent in 2017. They now total 21.1 million, just behind Vuitton’s 21.3 million.Gucci will continue to rely on organic growth, especially from boutiques converted to Michele’s retail concept. By the end of 2017, the company had renovated 152 stores out of 529, and plans to convert an additional 90 this year.Pinault believes the brand’s growth is built on solid foundations because it relies on a creative universe that feeds off outside influences — as witnessed by collaborations with the likes of Dapper Dan — and remains consistent from season to season.“The new consumers of luxury, the thirtysomethings, the Millennials, or Generation Z after them, don’t really care about a brand’s heritage. The dialogue with the brand is much more important these days,” he explained.“That is a structural change in the luxury market, and the brands that haven’t understood this are suffering now,” Pinault added.“Luxury today has to express an authentic creative vision, and it’s the sincerity that allows you to stand out in a world where everything looks the same. The powerful brands are those whose creative universe is based on imagination, and on an original and consistent world view,” he concluded.
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