Gucci sales hit hard by start of virus outbreak in China

Gucci sales were hit hard at the beginning of the coronavirus crisis due to its strong reliance on Chinese customers, owner Kering said on Tuesday, though it added that the Italian brand should be well positioned for a recovery.

Kering sales fell 15.4% to 3.2 billion euros ($3.47 billion) in the first quarter, impacted, like its rivals, by store closures. That was a 16.4% drop like-for-like, which strips out the effect of acquisitions and currency swings.

At its star Gucci label, which powers most of its profits, like-for-like sales were down 23.2% in the period, contrasting with a less pronounced 13.8% drop-off at Kering’s Saint Laurent brand.

The health crisis first hit China - a major market for high-end goods - late last year before spreading elsewhere, and several European countries including Italy and France as well as the United States have since gone into lockdown to try to cope.

Kering Financial Chief Jean-Marc Duplaix said the sales outlook was improving for mainland China as shops there reopen, which would benefit Gucci.

“From the start of April, we’ve seen an improvement and positive trends for most of our brands in mainland China,” Duplaix told reporters.

He said it was too early to draw any conclusions for Kering’s second quarter performance, though with most western countries under lockdown until May he did not expect any meaningful recovery to take hold before June or July.

Kering, like rival LVMH, said it was trimming its dividend payout against 2019 earnings by 30%.
Kering had previously warned it expected a drop in comparable sales of around 15% in the first quarter and that operating margins would decline. On Tuesday it said it was implementing cost-reduction measures, without elaborating.

The firm, which also owns Balenciaga, has been one of the big winners of a luxury goods bonanza in recent years alongside LVMH, and Gucci in particular had been booming.

That has put the cash-rich conglomerates in a stronger position than some standalone brands that were already in turnaround mode when the coronavirus crisis hit.

Citi analyst Thomas Chauvet said he expected Kering as well as Italian puffer jacket maker Moncler to weather the crisis better than rivals.

He also said Kering was likely to benefit from an expected move towards e-commerce to offset the impact of store closures, although the broader outlook for the sector was still gloomy.

Duplaix said online sales had risen 20% in the first quarter, with those at Gucci in China up over 100%.