Kering’s Q3 results: Gucci stabilises, Bottega Veneta picks up pace, Saint Laurent slows down
Last Friday, the morning after the publication of Kering’s Q3 results, the French luxury group’s share price surged on the Paris Stock Exchange, rising by 8%. In Q3 2019, despite the crisis in Hong Kong, where the group's sales fell by 35%, Kering's revenue increased by 14.2% (up 11.6% in like-for-like terms), compared to a 34.9% rise a year earlier, reaching €3.88 billion. The performance was driven by the strong results recorded by the luxury group’s three leading labels, Gucci, Bottega Veneta and Saint Laurent.
Gucci continues to rise in double figures, though it has now entered a stabilisation phase. Revenue growth is decelerating but the result was nevertheless above the financial analysts’ expectations, dampening the slowing down of a label which has experienced record growth for three years. Between July and September, sales rose by 13.3% (up 10.7% in like-for-like terms), compared to a highly positive period last year, while analysts had forecast an 8% increase. Royalties from the eyewear and beauty businesses notably increased by 31%.
A positive, revealing signal came from the Asia-Pacific region (excluding Japan), where comparable retail sales recorded the highest growth rate (up 18%). The region accounts for 37% of Gucci's global revenue. The sales slow-down in Hong Kong was largely compensated by a “massive repatriation” of consumption expenditure into mainland China. South Korea also benefited from this phenomenon, especially in the travel retail channel, and so did Singapore and, to a lesser extent, Australia and Macao.
In the USA, Gucci was instead affected by the local market’s generally weak consumption trend, and posted a 2% decrease in retail sales in a region that accounts for 18% of its total revenue. After two years of remarkable US growth, store footfall slowed down, though sales per square metre are on the rise, and US tourists in Europe remain a highly dynamic consumer segment for Gucci, said CFO Jean-Marc Duplaix in a conference call with analysts. He underlined that the label is multiplying in-store events and other marketing initiatives in the US, for example taking over the ground-floor shop windows of the Saks Fifth Avenue department store in New York. It is worth remembering that the ‘blackface’ controversy at the start of the year had an impact on the label in the USA, especially its African-American clientèle.
“Gucci is implementing its strategy in a determined manner, following its road map. [The label’s] strong appeal has generated healthy growth in all the main product categories,” added Duplaix. Small leather goods were recently revamped by Gucci’s creative director Alessandro Michele, and contributed to the label's performance alongside accessories and ready-to-wear. Duplaix also mentioned Gucci’s new growth drivers, such as beauty, with the launch this year of a lipstick line and of the gender-neutral fragrance Mémoire d'une odeur (memory of a scent), both of which met with a resounding success, especially on social media.
Bottega Veneta, led since September by new CEO Bartolomeo Rongone, was Kering’s surprise performer in Q3, recording “highly encouraging” sales worth €284.3 million in the quarter, up 9.8%, with comparable sales up by 6.9%. Notably, online sales doubled in the period.
Bottega Veneta has been slowing down in recent years, and posted an 8.4% sales decline in Q3 2018, but it is now improving faster than expected, and Kering’s senior management was keen to underline the enthusiastic reception, both by Bottega Veneta aficionados and by new clients, for the second collection designed by new Creative Director Daniel Lee. In Q2, Bottega Veneta’s sales had grown by 0.8% only.
In Q3, sales in the label's monobrand stores grew by 5%, notably in western Europe (where comp sales were up 10.1%) and North America (where comp sales rose 17.1%). Instead, in Asia-Pacific, where Hong Kong is a major market for Bottega Veneta, sales rose only by 1%, while returning customer figures were positive in Japan, though growing more slowly.
Like Gucci, Saint Laurent has slowed down its growth rate after a strong 2018, and reached a revenue of €506.5 million in the last three months, up by 13.3 % (a rise of 10.8% in like-for-like terms), compared to a 16.5% rise in the same period last year. The luxury label was penalised by its heavy reliance on France and limited presence in China.
Saint Laurent entered the Chinese market much later than Gucci and Bottega Veneta. The label’s reputation is now strong there, but not on par with its renown in Europe, Japan, South Korea or America, according to Duplaix. Saint Laurent opened its first three Chinese flagships very recently, at the start of 2019, and will continue to invest heavily on its expansion in China.
In Q3, the label recorded a rise in sales volumes for ready-to-wear and footwear, though this didn’t directly translate into a corresponding percentage rise in revenue, due to adjustments in its pricing policy, according to Duplaix.
“Historically, Saint Laurent has always been strong on ready-to-wear and shoes, but if we look closely at its recent performance, its growth is due to the success of the leather goods collections, and we need to boost the development of the footwear and apparel categories in terms of product range and pricing structure, in order to reach a broader clientèle,” said Duplaix, adding that “it isn't a question of lowering prices or pushing for volume increases, but of offering a better balance to make sure [Saint Laurent] can target different types of customers. The goal is to make Saint Laurent a global brand, this is why it needs to resonate with different consumer targets.”
In this context, the label continues to invest in order to expand in new markets and open new stores in areas where it is clearly underdeveloped, but it is also working on the product range, especially certain products it doesn't currently feature, such as sneakers, without however pushing very strongly in this direction.
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