Gucci remains Kering’s main cash generator in 2018

By

Dominique Muret

Translated by
Nicola Mira

Published
Feb 13, 2019

Gucci has once again confirmed its status as the Kering group’s “backbone,” as the boss of the French luxury group, François-Henri Pinault, defined it on Tuesday during the press conference for the publication of Kering’s annual results. Pinault underlined that Gucci reached its targets ahead of time, posting a revenue of €8.28 billion in 2018, and growing by a whopping 33.4% in published figures and by 37% in like-for-like terms. A remarkable result, considering how the previous year’s comparators were extremely high.

“Gucci delivered another exceptional year of healthy, extremely well-balanced growth,” enthused Pinault. Thanks to a 28% increase in comparable sales in the fourth quarter, and “a very positive start to the year,” the outlook for the luxury label led by Marco Bizzarri and Creative Director Alessandro Michele is rosy indeed.

Also because comparable sales in Gucci’s own stores leaped 38% at full price (+29% in Q4) “across all product categories, in all regions and for all customer segments by nationality and age,” said Gucci's Chief Financial Officer Jean-Marc Duplaix. In the wholesale channel, sales grew by 31%. Notable too was the balance between the results of the permanent collections, accounting for 70% of total sales, and those achieved by new products, whose continued success feeds the carry-over line.

As Gucci keeps on investing, revenue growth in 2018 was key to boosting operating income, which leaped by 54.2% compared to 2017, reaching €3.275 billion, equivalent to a 39.5% margin for the year. In 2018, Gucci set a new profitability record, and accounted for more than 80% of the Kering group’s operating profit, worth €3.944 billion.

The spearhead of the French luxury group, Gucci still has ambitious plans for the future, and confirmed that its goal is to reach a revenue of €10 billion. Gucci intends to “do better than the market, growing at twice the market’s rate, which is expected to range between 5 and 6%. This is feasible for Gucci, even taking into account the fact that the business environment will be more complex. If we stick to this growth forecast, it’s highly probable Gucci will be able to reach an operating margin of 40%,” said Duplaix, adding that the Italian luxury label also aims to “exceed the €1 billion mark in online revenue.”

Gucci did not disclose how much its e-revenue is worth, but indicated that online sales, which were equivalent to 6% of retail sales, grew 70% in 2018, and also that they are still below average in China, meaning Gucci still has room to grow with a customer base which includes “all age groups.”

According to Pinault, there is still quite a way to go before Gucci realises its full potential. Especially in terms of fragrance and beauty products, which are licensed to Coty. “These licenses are still modest in size. We generate €400 million with Coty. We want to achieve better performances in this segment,” said Pinault, talking to journalists after the results’ presentation. “We cannot be satisfied with that, because the [fragrance and beauty] categories are gateways to a luxury label like Gucci. We are working closely with Coty, developing scents, packaging and advertising campaigns, in order to achieve the ideal creative consistency between all these elements. Gucci’s aim is to have a global approach for skincare and make-up,” said Pinault. Gucci’s beauty collections are slated to hit the market in 2019.

Another growth factor will be the launch of a high jewellery line “which will further strengthen Gucci’s positioning at the highest end of the spectrum.” The label also wants to strengthen its position in the travel retail channel, where it is “under-represented.” The goal is for travel retail to account for at least 10% of Gucci's total revenue.

Gucci’s strategy of boosting commercial effectiveness enabled its stores to achieve a profitability of €40,000 per square metre in 2018. The strategy hinges chiefly on renovating existing Gucci stores, adopting the new interiors concept developed by Alessandro Michele, which allows for more categories to be showcased, as well as to stock and display a broader range of products. It will take from two to three years to upgrade all of Gucci’s stores, as the new concept has so far been deployed in 43% of them.

At the end of 2018, Gucci operated 540 monobrand stores, 11 more than the previous year. “The store network is stable as of now, but we are working on its quality, in terms of store size, via extensions and improvements to the premises,” said Pinault, also underlining how “a greater internalisation of the supply chain enabled [Gucci] to better adapt its industrial capacity to the output growth required, with higher quality too, while reducing the time-to-market of Gucci products.”