Kering sales rise 23% in third quarter as US tourists splurge in Europe – WWD

PARIS Kering confirmed the resilience of the luxury sector with a strong performance in the third quarter, and expressed confidence that all key regions would continue to generate growth despite the global economic upheaval.

The French luxury group said on Thursday that sales rose 23% in the three months to September 30, fueled by a stellar performance in Western Europe, where American tourists splurged due to weak weather. euro against the US dollar.

“Western Europe has been the most powerful engine of growth,” Jean-Marc Duplaix, CFO of Keringsaid on a conference call with analysts.

“The region benefited from strong demand from local customers and a strong rebound in sales to tourists, which almost tripled year-on-year,” he said. “Americans came back massively this summer.”

Kering’s cash cow Gucci continued to underperform the group’s other brands, although organic sales accelerated in the third quarter. The turnover of the Italian label amounted to 2.6 billion euros, up 9% on a like-for-like basis, after a 4% increase in the second quarter.

The figure was slightly below a consensus of analyst estimates, which predicted a 10% increase in comparable sales for the maker of Dionysus handbags and horsebit loafers. For comparison, the organic sales of the key fashion and leather goods division of LVMH Moët Hennessy Louis Vuitton grew 22% year over year in the third quarter.

Reporting its first-half results after market close, Kering said the group’s third-quarter revenue was 5.14 billion euros, up 14% on a like-for-like basis. That was up from the second quarter and above consensus forecasts of a 12% increase in sales.

The group, whose brands also include Saint Laurent, Bottega Veneta and Balenciagasaid revenue from its directly operated store network continued to grow at a rapid pace, up 19% on a like-for-like basis.

Western Europe posted a jump of 74%. Conversely, North America grew by only 1%, still penalized by a high comparison basis. Japan saw a 31% increase, while Asia-Pacific saw 7% growth, despite ongoing restrictions in mainland China designed to curb the spread of COVID-19.

“We delivered strong revenue growth, both over last year and over pre-pandemic levels. Our continued emphasis on the exclusivity of our brands and the quality of their distribution is yielding very positive results and strengthening their positioning in their key markets,” said François-Henri Pinault, Chairman and CEO of Kering, in a press release.

“In an increasingly complex environment, we maintain the flexibility necessary to support our profitability and sustain our investments in the sustainability of all our houses, Gucci first of all. We are more confident than ever in the group’s potential and prospects,” he added.

Duplaix said despite US customers shifting spending to vacation destinations in Europe and predictions of a US recession over the next 12 months, he remains confident in the country’s outlook.

“We clearly have no short-term plans to reduce or revise our long-term ambition in the United States,” he said. “Beyond percentage change, if you look at conversion rates, sales density, etc., the company is still flying in the US”

Mirroring a trend seen elsewhere, trade remains buoyant with the biggest spenders, while the most ambitious product categories are under pressure.

In mainland China, COVID-19-related lockdowns continued to weigh on business in the third quarter, with Gucci being disproportionately impacted compared to the group’s other brands. Nonetheless, Duplaix thinks China will bounce back.

“We see that there is still a lot of appetite for luxury goods in China,” he said. “I don’t see why overnight the potential of the region would have changed, so I think we have to keep calm and continue in the country.”

Earlier this year, Gucci named Laurent Cathala president of the Greater China fashion business, responsible for reviving the business. “It will definitely take time, but we’re very confident that we have the team in place, we have the products, the offering, to be successful in the country long-term,” Duplaix said.

Cathala’s appointment was part of a larger reshuffle at Gucci that included the appointment of Maria Cristina Lomanto as executive vice president, general manager of the brand, a new position. Duplaix said she would oversee Gucci’s full return to the fashion calendar as early as 2023 with six collections, after the brand cut its schedule to two shows a year during the pandemic.

“This involves working closely with design teams and marketing and supply chain teams to ensure a unified and very cohesive go-to-market capability,” he acknowledged.

One country where the outlook remains bleak is Russia. Kering closed its directly operated stores there in March in response to Russia’s invasion of neighboring Ukraine, but continued to pay salaries and rent. He is now considering the ramifications of a permanent withdrawal.

“To protect the brand, this involves at least some presence in the country, so we will measure what is the best balance in terms of business decisions, but we do not expect to be able to operate in the country again, in the short term. or in the medium term,” said Duplaix.

Overall, he underscored the need to remain nimble in dealing with a volatile global economic climate that offers little visibility.

“Our sector may be less correlated than others to overall economic conditions, but that doesn’t mean it’s completely weatherproof. Our plans for long-term investment in our homes and our growth platforms are therefore unchanged, but we are also ready to make the right decisions quickly to keep the group on track in the short term, should the need arise. feel,” he said.

“Overall, we remain confident in Kering’s fundamentals, in our ability to meet challenges and in our outlook for the coming quarters,” he added.

Kering share price has fallen 35% year-to-date amid looming recession, soaring inflation, supply chain disruptions, Chinese lockdowns and war in Ukraine . But Bernstein Research analyst Luca Solca believes its current valuation is fair because of the potential of the group’s smaller brands.

“The ‘small’ Kering brands aren’t so small anymore, because they make up a bigger portion of Kering’s profits,” he said in a report dated Sept. 21. Solca noted that non-Gucci brands accounted for 28% of earnings before interest. and taxes in fiscal 2021, up from 20% in 2010, with absolute profits tripling over the same period.

“The revival of Gucci will take time, in all likelihood. But in the meantime, the “small” Kering brands continue to shine. At this level of valuation, and with the prospect of a boost from China’s reopening next year to outbound travel, it’s hard to be bearish on Kering. While this may not produce any significant positive surprises in the short term, the relative decline looks limited from here,” he said.

Kering recently announced that it is aiming for 15 billion euros in sales at Gucci. He also highlighted Saint Laurent’s potential to become a mega-brand, with a medium-term sales target of 5 billion euros, double the 2.5 billion euros in sales recorded last year. .

Saint Laurent was the star of the group in the third quarter, with organic sales growth of 30%. Although revenues were driven by all product categories, Duplaix highlighted the success of the more expensive Icare handbag, launched in the second quarter. The maxi quilted lambskin tote is sold for 3,500 euros.

“Saint Laurent’s excellent performance this quarter, particularly with locals, confirms the house’s very positive trajectory,” he said.

Same-store sales increased 14% at Bottega Veneta, which continues to move upmarket under new creative director Matthieu Blazy. “Bottega Veneta is diligently implementing its roadmap and we are confident that the house will amplify its successes in all markets,” said Duplaix.

Although Kering does not distribute its revenues for Balenciaga, analysts estimate that the brand achieves an annual turnover of around 2 billion euros. The “other homes” division, to which it belongs, recorded a 13% increase in like-for-like sales in the third quarter.

“The brand is progressing very well in all categories with the great success of collections and leather goods,” said Duplaix, noting that there was also a rebalancing towards more formal pieces in footwear and ready-to-wear. carry.

While Kering has been working to raise the average selling price of its products across the board, Duplaix declined to give any insight into future price increases related to rising input costs, especially prices. energy, affecting its entire production chain in Europe.

“As usual, we will support our supplier network. We have done this many times, including during the COVID-19 crisis. So, of course, we will absorb some of that inflation in the cost of production,” he said. “We have room to save money and of course we can always increase prices, even if there are other considerations with regard to price increases.”

Namely, he mentioned the risk of high volatility in terms of currencies. “We did not increase prices during [the third quarter] and I will not comment on what will happen in [the fourth quarter] and in 2023,” he said.

Kering’s results follow figures from Hermès International earlier in the day, showing sales at constant currencies rose 24% in the July-September period, with revenue gains to two figures in all regions. At the same time, LVMH announced that its sales increased by 19% during the quarter on an organic basis, in line with trends observed in the first half.