(News Bulletin 247) – Sales at the Italian label’s parent company fell more than expected this summer. Kering pales in comparison to its rivals whose sales are still growing, in a context of slowing demand for luxury products.

Once again, Kering suffers from a more than cruel comparison with its peers. And this gap widens over the quarters. The luxury group has in fact recorded a sharp decline in its sales, with turnover falling by 9% on a comparable basis (-13% on published data) between July and September 2023.

A figure that obviously pales in comparison with Hermès, whose growth clearly exceeded expectations (+15.6% on a comparable basis) over the same period. Or even with LVMH, which has observed a slowdown in its turnover, but which nevertheless remains in significant growth (+9%).

Kering cites the slowdown in demand for luxury products to explain this poor performance and this turnover of 4.464 billion euros. This indicator turns out to be lower than consensus expectations, which expected on average that Kering would achieve sales above 4.50 billion euros. For its part, Invest Securities does not beat around the bush and describes this publication as “really not good”.

Online sales suffered the blow, with revenues falling by 25 to 30% in the third quarter, recalls Royal Bank of Canada. The Canadian bank specifies that there was a “higher impact on aspirational customers (that is to say less wealthy than traditional customers and more oriented towards less expensive products and more in tune with the times , NLDR), which had an impact on the group’s organic retail sales growth of 2 to 4 percentage points.

An observation that was shared a little earlier this month by LVMH, the first CAC 40 company to open the publishing ball. Jean-Jacques Guiony, LVMH’s financial director, told analysts that, as in the first half, “pressures” continued to penalize so-called “aspirational” customers. “There is nothing new on this subject, whether for good or bad,” he explained.

For their part, the Hermès group’s customers are less sensitive to price increases. She has not turned away from the saddler’s products despite the overall price increases of around 7% decided by Hermès since the start of 2023.

The Gucci machine (again) broken down

The group’s flagship brand, Gucci (50% of its sales in the third quarter) saw its quarterly revenues contract by 7% on a comparable basis and by 14% on a published basis. In this context of low desirability for the Italian label, Kering has worked hard to relaunch the brand. The luxury group has begun a process of rationalizing its sales channels and has taken several initiatives to boost Gucci and “elevate” the brand’s positioning.

Last April, Gucci notably appointed Maria Cristina Lomanto to take over as general manager, while Sabato de Sarno, a young stylist who trained at Dolce & Gabanna and Valentino, unveiled his first collection for Gucci at the end of September. “The first collection will be officially launched in mid-February, with gradual development from mid-March,” specifies Royal Bank of Canada, which adds that “30% of the collection will be renewed by the end of 2024 by Sabato de Sarno “.

However, the recovery of Gucci will not be an easy task for Kering. This is what Bank of America said in a note published last September.

Quoted by AFP, the deputy general manager in charge of operations and finances of Kering, Jean-Marc Duplaix, for his part recognized that Kering is “in a transition phase”, during a telephone exchange.

The other houses are struggling

Excluding Gucci, Kering saw its performance hampered by the poor performance of its other houses, such as Bottega Veneta, whose sales were down 13% between July and September. For Balenciaga, the brand’s reputation remains tainted by a controversy which broke out last year. The brand had been accused of sexualizing children in a campaign. Which led the artistic director, Demna Gvasalia, to apologize.

Kering does not publish Balenciaga’s performance separately, but the brand, whose “growth is contrasted from one region to another”, is placed in the “other houses” category which saw its revenues fall by 15% in comparable data.

Even Yves Saint Laurent, one of the brands that made Kering’s heyday, is also showing clear signs of weakness, with sales down 16% in published data and 12% in comparable data.

Only the Kering Eyewar division, which includes optical frames and sunglasses, offers a ray of sunshine for the group led by François-Henri Pinault, with a 31% increase in sales. “The growth for the quarter is mainly driven by sales of optical frames, after a very dynamic first half for sales of sunglasses,” explains Kering.

In addition to the slowdown in demand in the luxury sector, Kering indicates that its quarterly performance was penalized by “decisions aimed at strengthening the exclusivity of houses and their distribution”. In other words, the company internalizes the distribution of its products by reducing the share of sales through distribution networks. The goal being, according to management, to limit promotions and move its brands upmarket.

“Kering’s third quarter 2023 results appear worse at first glance than they may be. The retail revenue decline of -6% is slightly lower than our expectations (-4%) with streamlining of wholesale sales worse than expected,” says RBC.

Pressure on margins

On the outlook side, Kering management provided “clear” comments, in RBC’s view, on Gucci’s margin guidance (with expectations of -200 basis points, or -2 percentage points) for the year 2023 and no improvement for 2024, “which should constitute a floor”, for the design office.

“Current momentum is quite weak with traffic issues being the primary concern, but we believe the valuation adequately accounts for the current momentum differential versus peers and we remain positive on new Gucci product flows from from the beginning of 2024″, continues the Canadian bank which remains underperforming on the file with a price target of 540 euros.

On the Paris Stock Exchange this Thursday, Kering’s publication was sanctioned, but in no way comparable to Worldline, which plunged by 58% after drastically lowering its outlook for the current financial year. The title of the luxury group still lost 3.3% around 12:00 p.m., a little more than its stock market comparable LVMH (-1.1%), while Hermès showed an increase, still driven by its quarterly publication higher than expectations revealed the day before.