Kering Says Investments May Hit Margins as Gucci Sales Decline

(FILES) A photo taken on June 18, 2013 shows the new name and logo of French luxury and retail group PPR , Kering. (Photo by FRANCOIS GUILLOT / AFP)
(FILES) A photo taken on June 18, 2013 shows the new name and logo of French luxury and retail group PPR , Kering. (Photo by FRANCOIS GUILLOT / AFP)
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Kering Says Investments May Hit Margins as Gucci Sales Decline

(FILES) A photo taken on June 18, 2013 shows the new name and logo of French luxury and retail group PPR , Kering. (Photo by FRANCOIS GUILLOT / AFP)
(FILES) A photo taken on June 18, 2013 shows the new name and logo of French luxury and retail group PPR , Kering. (Photo by FRANCOIS GUILLOT / AFP)

Kering posted a 4% decline in fourth quarter sales, hit by slowing demand for fashion as it seeks to turn around its top brand Gucci, and cautioned that investments in its labels could affect margins in 2024.
Sales at the French group, which also owns fashion brands Bottega Veneta and Balenciaga and jeweler Boucheron, fell to 4.97 billion euros ($5.36 billion) in the final three months of the year, despite improvement in the United States and Europe. That was broadly in line with expectations for 4.94 billion euros, according to consensus estimates cited by RBC.
After a post-pandemic splurge that fueled stellar sales growth for high end fashion companies over two years, consumers have been reining back purchases, particularly younger, less wealthy clientele that are more vulnerable to rising inflation.
"We will continue to invest in our brands in the long term -- yes, that means in the coming year our margins will be less supported than in previous years," Kering chief financial officer Armelle Poulou told reporters, according to Reuters.
"We think it’s the good strategy to ensure growth in the long term for our brands," she added.
Kering’s efforts to revive sales at its star label Gucci, which has lagged rivals over the past two years, have been complicated by the slowing demand.
Barclays' analysts project industry-wide growth from high end luxury companies of 5% this year, down from 9% last year and double digit growth the previous two years.
Gucci's performance improved over the fourth quarter, down 4% year-on-year, compared with a 7% decline in the third quarter. The label's recurring operating margin stood at 33.1% for the full year, lower than its level of 35.3% in the first half.
"Gucci is not performing worse than expected which is a relief," said Piral Dadhania, analyst with RBC, noting that the focus would now turn to Gucci's margin outlook.



Hermes 2Q Sales Rise 13% on Continued Appetite for High-End Luxury

People stand with Hermes shopping bags as they wait at a traffic light in Tsim Sha Tsui, a bustling shopping hotspot, in Hong Kong, China December 5, 2023. (Reuters)
People stand with Hermes shopping bags as they wait at a traffic light in Tsim Sha Tsui, a bustling shopping hotspot, in Hong Kong, China December 5, 2023. (Reuters)
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Hermes 2Q Sales Rise 13% on Continued Appetite for High-End Luxury

People stand with Hermes shopping bags as they wait at a traffic light in Tsim Sha Tsui, a bustling shopping hotspot, in Hong Kong, China December 5, 2023. (Reuters)
People stand with Hermes shopping bags as they wait at a traffic light in Tsim Sha Tsui, a bustling shopping hotspot, in Hong Kong, China December 5, 2023. (Reuters)

Birkin-bag maker Hermes reported a 13% rise in second-quarter sales on Thursday, demonstrating the continued appetite from wealthy shoppers for its luxury handbags, even as less affluent consumers pull back.

Sales at the French luxury group grew to 3.7 billion euros ($4.02 billion), a 13% organic sales rise that strips out currency fluctuations. The figure was in line with analyst expectations, according to a Visible Alpha consensus.

Operating profit for the first half was 3.1 billion euros, compared to a forecast from consensus provider Visible Alpha for 3.2 billion.

One of the most steady performers in the luxury goods sector -- even as economic conditions worsen -- the French group's results stand out after a string of disappointing earnings updates from peers which have raised investor concern about uncertain prospects for the sector in the coming months.

Hermes' famously classic designs and tight management of production and stock have helped reinforce the label's aura of exclusivity, and CEO Axel Dumas told reporters the company had seen "no big interruption in trends".

However, he said Hermes was seeing slightly less traffic with aspirational clients, which was impacting higher volume products like fashion accessories.