PARIS – Kering reported on Wednesday a turnover down 5% in the third quarter on a comparable basis, including a decline of 14% for its flagship brand Gucci, results better than expected.

These are the first financial results published since the arrival in September of new CEO Luca de Meo, responsible for turning around the highly indebted French luxury group.

The luxury group recorded a turnover between July and September of 3.42 billion euros, including 1.34 billion euros generated by Gucci.

A consensus of analysts compiled by Visible Alpha anticipated a drop in the group’s organic sales of around 9.6%, including a fall of 15.34% for Gucci.

Gucci reports a double-digit drop in revenue for the seventh consecutive quarter, reminding investors of the brand’s struggles despite renewed optimism for the sector.

“Kering’s performance in the third quarter, although clearly improving sequentially, remains below that of the market,” Luca de Meo said in a statement.

“This strengthens my resolve to act at all levels of the company,” he added.

The 5% drop in sales “still constitutes a strong sequential improvement, approximately half of which can be explained by the performance of the Houses, beyond the favorable bases of comparison”, affirmed Kering in its press release.

NEW MANAGEMENT

Kering shares have risen around 85% since the surprise announcement of the hiring of Italian Luca de Meo as chief executive in June, with the Stoxx Europe Luxury 10 index gaining around 12% over the same period as investors bet on a restructuring of Kering and its refocus on fashion.

Former boss of Renault, Luca de Meo is responsible for reducing Kering’s debt and streamlining its organization. At the beginning of September, the group’s shareholders approved his appointment as well as his remuneration, which was the subject of criticism because it included a very substantial starting compensation of 20 million euros, in addition to the fixed and variable parts.

Newly arrived, Luca de Meo announced this week the conclusion of an agreement between Kering and the French cosmetics giant L’Oréal, to sell Kering’s branch dedicated to beauty products for 4 billion euros – an amount which could help to reduce its debt.

“We continue to work tirelessly on our deleveraging and optimization of our cost base,” Armelle Poulou, Kering’s chief financial officer, said on a call with reporters Wednesday.

“The recent announcement of our alliance with L’Oréal allows us to significantly accelerate our roadmap in the beauty sector,” she added.

Major competitor of Kering, LVMH announced quarterly sales slightly better than expected last week, triggering strong investor enthusiasm for luxury stocks, with the latter eager to see the sector’s difficulties ease.

HSBC analysts said in a note this month that the group faced the easiest basis of comparison of the year in the third quarter, but cautioned that it was too early to spot a clear trend, given that most of the key product launches and marketing campaigns were only just beginning.

Armelle Poulou estimated on Wednesday that “around half” of the sequential improvement observed compared to the previous quarter “comes from favorable bases of comparison”.

(Writing by Tassilo Hummel, Mimosa Spencer and Florence Loève, editing by Kate Entringer)

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