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Mar 20, 2020
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Kering expects a 15% comps decline in Q1 due to coronavirus

Published
Mar 20, 2020

Kering is in the process of calculating the initial impact of the ongoing coronavirus pandemic on its operations. The French luxury giant, which owns Gucci, Saint Laurent, Bottega Veneta and Balenciaga, announced on Friday, 20 March, that it expects to see a 15% decrease in its comparable sales in the first quarter of 2020, which ends on 31 March. 


Bottega Veneta


The group further explained that this decline would translate into a decrease in reported sales of between 13% and 14%. Kering achieved an excellent first quarter in fiscal 2019, posting year-over-year increases of 21.9% in reported sales and 17.5% in comparable sales. Kering's revenues in Q1 2019 totalled 3.785 billion euros, meaning that the expected decline announced by the company on Friday would see its quarterly revenue come in around 3.2 billion euros, a decrease of around 550 million euros. 

First hit by the spread of the novel coronavirus in China and the rest of Asia at the beginning of the year, Kering now sees most of its markets affected by the health crisis.

"Currently, the Group is observing encouraging signs in Mainland China, where the decline in store traffic, and hence in sales, is narrowing," explained the company in a press release. "Conversely, the impact of the epidemic remains significant in other Asia Pacific markets, and the situation has substantially deteriorated in recent weeks in Western Europe and, more recently, North America."

Kering expects that the situation will affect at least its entire first quarter, and also predicts "second quarter 2020 revenue sharply impacted by the effect of the epidemic on local clienteles and tourism," as well as "a first half 2020 recurring operating margin in decline." This margin was 29.5% in the first half of 2019, having risen 160 basis points compared to the same period in fiscal 2018. The group did, however, state that it would "be premature to quantify [the effects of the coronavirus on these figures] at this stage given the dynamic nature of the situation and the current lack of visibility."
 
The company, which "has implemented an initial action plan aimed at adapting its cost base and containing its working capital requirement," explained on Friday that it is also "currently considering additional measures that can be activated to mitigate the dilution of its recurring operating margin throughout the year, while protecting its houses’ market positions and preserving their growth potential and capacity to bounce back in the short and medium term."

All in all, it seems that the group is preparing the ground before announcing more drastic measures.

Kering reported annual revenues of 15.88 billion euros in fiscal 2019, up more than 16%, while operating margin was a "record" 30.1%. Net income attributable to the company totalled 2.3 billion euros.

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