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Gucci Stumbles as Kering Gears Up for Brand's 100th Year

Gucci Stumbles as Kering Gears Up for Brand's 100th Year

Wednesday, 17 February, 2021 - 09:30
Customers line up to enter a Gucci fashion store at The Galleria shopping mall after the mall opened during the coronavirus disease (COVID -19) outbreak in Houston | Reuters/Adrees Latif

Sales at Kering's Gucci fashion brand fell more than expected in the fourth quarter, underperforming some rivals starting to recover even as the COVID-19 pandemic keeps consumers from traveling abroad and shopping.

Gucci accounts for 60% of revenues and 80% of profits at the French conglomerate, and has been one of the industry's top performers in recent years, making it a major focus for analysts and investors.

Despite a rebound in key luxury market Asia, which fuelled resurging sales at rivals such as LVMH's Louis Vuitton, Gucci stumbled in late 2020, and Kering said a weak European performance had dragged on its brands.

Kering shares were down more than 7.5% in early trading.

The conglomerate said momentum should pick up in 2021, when Gucci will launch new products and collaborations to chime with its 100th anniversary.

Kering, which also owns Saint Laurent and Balenciaga, said overall revenue fell 8.2% to 4 billion euros ($4.8 billion) in October-December, down 5% on a comparable basis and missing analysts' consensus forecast cited by UBS for growth of 1%.

Gucci's sales were down 10.3% in the quarter on a comparable basis, when analysts had expected a 4% drop.

"To just look at 2020, quarter after quarter, is to take a short-term view. We have a lot of actions to return to a path of growth, taking advantage of the recovery," Kering's finance chief Jean-Marc Duplaix told reporters.

Investors are keeping a close watch on the extent to which Gucci is losing steam after a hugely successful, quirky makeover under designer Alessandro Michele, which saw its revenues more than double and profits treble between 2015 and 2019.

Analysts said the earnings miss at Gucci, partly as it trims its wholesale exposure and sales via third parties such as department stores, was likely to weigh on the group's share price and trigger some changes to bolster the brand.

"We believe Gucci management will work hard to open a successful 'new chapter' of growth in the coming year aimed at capturing an older, non-millennial demographic and rebalancing product/price/age mix with a slight change in aesthetics and merchandising," said Thomas Chauvet of Citi.

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