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Apr 18, 2019
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Kering shares slide as Gucci's growth slows

Reuters API
Apr 18, 2019

Kering's shares fell by nearly 6 percent on Thursday after signs of a slowdown at the French fashion company's Gucci brand, particularly in the United States, took the shine off a broader rise in sales.

Gucci - Fall-Winter2019 - Womenswear - Milan - © PixelFormula

Traders and analysts honed in on Gucci as one of the main reasons for the drop, along with profit-taking, after Kering said on Wednesday that first quarter revenues had risen 21.9 percent to 3.8 billion euros (£3.3 billion).

"There were two dark spots ... Gucci U.S. decelerated to 5 percent organic sales growth and Bottega Veneta (BV) was back down at -9 percent, down more than in previous quarters after a short-lived improvement in Q4 18," JP Morgan said in a note.

"The BV turnaround will indeed take time in our view, if only owing to its high exposure to carryovers," it added.

Kering, which also owns Saint Laurent and Balenciaga, relies heavily on Gucci for the bulk of its sales and profits, drawing scrutiny over whether it can keep up momentum at the label following its revamp under designer Alessandro Michele.

The group, run by billionaire boss Francois-Henri Pinault, has said Gucci will naturally expand at a less breakneck pace over time after it more than doubled in size over the past four years, with annual sales reaching more than 8 billion euros.

In the first quarter, Gucci's comparable revenue - which strips out the effect of currency swings - rose 20 percent. Yet this was down from 28 percent three months earlier, and nearly 50 percent at the start of 2018.

Analysts at RBC Capital Markets had a more positive view on Gucci, but said that Bottega Veneta remained a weak spot.

"The bottom line is that Kering continues to deliver sector-leading organic growth and Gucci remains on track to engineer a soft landing this year notwithstanding the sequential slowdown in the U.S and Europe," RBC said.

"In fact, management said during the call that growth for Gucci in March was in line with Jan-Feb combined, which we see as reassuring. Elsewhere, YSL, Balenciaga and AMQ continue to shine while BV's difficulties in a transition year are not enough to offset the positives above," RBC added.

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