Growth stalls for Kering's top brand Gucci

Friday 21 February 2014 09.53
Gucci sales hit by a smaller flow of tourists into Europe in the fourth quarter
Gucci sales hit by a smaller flow of tourists into Europe in the fourth quarter

Sales growth at Italian luxury brand Gucci almost ground to a halt in the fourth quarter.

Its parent company Kering reported a steep drop in full-year profits, hit by heavy restructuring costs.

Gucci's performance is likely to reinforce concerns among investors about the long-term growth prospects of brands such as Gucci and Louis Vuitton as consumers increasingly favour newer, niche labels.

Gucci, Kering's flagship label that accounts for more than half of its market value, saw its like-for-like sales growth in the three months to December 31 fall to 0.2% from 0.6% in the previous quarter. 

Analysts had expected an improvement.

Kering's finance director Jean-Marc Duplaix said Gucci suffered from a smaller flow of tourists into Europe in the fourth quarter, while efforts to reposition the brand further upmarket were taking time.

Reacting to consumer fatigue with logo-heavy products, Gucci has sought to strengthen its higher-end offering with more logo-discreet leather bags and fewer canvas bags.

Duplaix said the brand's trading in China improved in the last quarter and its operating profit margin rose slightly in the second half to 31.9% from 31.7% a year earlier.

Kering also owns Yves Saint Laurent and Bottega Veneta. Under the stewardship of designer Hedi Slimane, appointed in 2012, Yves Saint Laurent has become the French company's fastest growing major brand, with like-for-like revenue up 42% in the fourth quarter alone and 22% in 2013 overall.

The growth was not so much driven by shop openings - as can often be the case - as half of Yves Saint Laurent's sales came from wholesale revenue, up 43% last year.

Kering's profits were hit last year by the restructuring of mail order business La Redoute, which the group sold in a management buy-out, completing its exit from retail to focus on luxury and sports brands.

Its net profit for 2013 tumbled to €50m from €1.048 billion a year earlier. Recurring operating income fell 2.3% to €1.75 billion, roughly in line with market expectations.

The company's chief executive Francois-Henri Pinault said he was confident the company would increase revenue and recurring operating income this year, with a focus on achieving profitable organic growth at its luxury brands and a relaunch plan for its Puma sportswear brand.

Puma, 84% owned by Kering, said yesterday that it was banking on high-profile signings to underline its sporting credentials and stop sales falling this year after revenue tumbled more than expected in the last three months of 2013.