PARIS (Reuters) – Kering reported a 7% like-for-like decline in fourth-quarter sales on Wednesday as COVID-19-related health restrictions in China weighed heavily on its flagship brand Gucci.

Sales of the latter fell over the period by 14% on a like-for-like basis, the temporary store closures due to Beijing’s “zero-COVID” policy having weighed heavily on the network of directly owned stores.

According to a Visible Alpha consensus quoted by UBS, Kering’s sales were expected to fall 3% like-for-like in the fourth quarter, with Gucci down 11%.

In the results press release, CEO François-Henri Pinault recognizes performance “not all up to our ambitions and our potential”.

Competitor LVMH, which owns the Dior, Louis Vuitton, Sephora and Hennessy brands, among others, reported last month organic growth of 9% in the fourth quarter, after +20% in the previous quarter, hampered also by health restrictions in China.

Since then, Beijing has ended its “zero-Covid” health policy, which has given the sector hope for a resumption of spending by Chinese customers on luxury goods.

The start of the year has been “very encouraging” in China, commented Kering’s chief financial officer, Jean-Marc Duplaix, during a conference call with journalists.

NEW MOMENTUM

Beyond the difficulties encountered by Gucci at the end of 2022, the brand has been experiencing a marked slowdown in recent years.

Its chief creative officer, Alessandro Michele, left the house abruptly in November after seven years in the role following tensions with Kering management, sources told Reuters.

The luxury group last month appointed Sabato De Sarno to replace him, with the mission of giving new impetus to the brand.

Gucci, the French group’s main profit center, saw its sales increase by only 1% like-for-like over the whole of 2022, against double-digit increases for other Kering brands such as Yves Saint Laurent (+ 23%) and Bottega Veneta (+11%).

Its current operating profit stagnated at 3.73 billion euros, while that of Yves Saint Laurent jumped 43% to exceed one billion euros.

In total, Kering’s operating profit in 2022 stands at 5.59 billion euros, up 11%, but the operating margin fell to 27.5% against 28.4% a year earlier.

For 2023, Kering expects a “profitable growth trajectory” despite the persistence of short-term economic and geopolitical uncertainties. It is aiming for high cash flow generation and high return on capital employed.

(Written by Blandine Hénault, with contributions from Mimosa Spencer, edited by Matthieu Protard)

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