Gucci the motor driving booming sales at Kering

Booming sales growth at French luxury group Kering got even faster in the first quarter, sending its shares to record highs on Wednesday, as red-hot demand for its Gucci clothing and handbags was joined by other labels such as Balenciaga.

Kering shares surged gained over 20 points on Wednesday, closing up 4.61 percent at the end of the trading day, as the group’s sales bounce confirmed a rosy outlook for 2018 heralded by a strong first quarter performance at Louis Vuitton-owner LVMH.

A recovery in spending by Chinese shoppers over the past 18 months has fueled revenue rises for many top luxury players, especially conglomerates such as Kering and LVMH which have a wide range of brands.
Kering’s biggest label Gucci continued to defy expectations of a slowdown. Instead its revenue growth accelerated in the first quarter, as sales in the United States also took off.

The brand’s three-year revamp with a flamboyant new style sparked a sales frenzy, but comparisons against a stellar performance in 2017 are growing tougher.

“Throughout the year there should be a progressive normalization,” Chief Finance Officer Jean-Marc Duplaix told journalists, adding the pace of sales growth at Gucci would nevertheless remain very high.

It reached 49 percent year on year in the first quarter on a comparable basis, which strips out currency swings, while at Kering as a whole like-for-like sales grew 36.5 percent, trumping analyst forecasts of around 24 percent.

Gucci overhauled its product range and store designs as part of its reboot - measures other brands like Britain’s Burberry are bringing in as they pursue growth - and the Italian label is set to update investors on its targets in early June.

Analysts have also questioned whether consumers might tire of Gucci’s distinct look, though Duplaix said Gucci’s growth was sustainable and the brand was not just reliant on notoriously fad-led younger buyers.

CLOUDS ON HORIZON

The European luxury sector is still facing headwinds, including a strong euro that hurts sales when converted into the currency, as well as brewing U.S.-China trade tensions, which risk rattling Chinese buyers.

Not all brands have managed to ride the luxury wave, meanwhile, as some struggle to catch the attention of younger shoppers.

Sales at Kering’s Bottega Veneta, which is bringing in new handbag designs, grew just 0.7 percent on a comparable basis in the first quarter, less than expected.

But many of group’s other labels are on the up, mitigating for now any concerns about Kering’s dependence on Gucci.

Sales growth at Balenciaga, which has won over fashion fans with a streetwear-infused look, even outperformed the pace at Gucci, Kering said.

“Almost all of its brands are running at full speed,” analysts at Berenberg said in a note.

Kering’s sales figures no longer include sportswear firm Puma which it is set to spin off to its shareholders by the middle of May as the group focuses purely on luxury.

Stella McCartney and skate clothing firm Volcom, at varying stages of parting ways with the group, were also excluded.