Shares in Gucci owner Kering fall after weak growth

Kering SA, which owns the Gucci fashion label, fell the most in about six months after third-quarter revenue trailed estimates amid the weakest growth in four years.

The shares retreated as much as 4.7 per cent to €164.50, the steepest intraday decline since April 26.

Sales from continuing operations declined 1.5 per cent to €2.52 billion, Paris-based Kering said after markets closed yesterday.

Excluding acquisitions and currency fluctuations, revenue rose 3.4 per cent, the company said.

Kering follows LVMH Moet Hennessy Louis Vuitton SA in reporting slowing growth as Gucci and LVMH's Louis Vuitton brand tighten distribution and raise prices in an effort to appeal to the wealthiest shoppers.

Gucci’s comparable sales advanced 0.6 per cent in the third quarter, versus an average analyst estimate for growth of 2.1 per cent.

That was the weakest performance since the third quarter of 2009, when sales fell 7 per cent.

"Gucci was clearly weaker than expected" with growth slowing for a fourth straight quarter, said Thomas Chauvet, an analyst at Citigroup in London. "This partly reflects self-inflicted disruption from a brand-elevation strategy."

Gucci is introducing logo-free leather handbags such as the Bamboo Shopper and Lady Lock, which costs $2,290, and trimming wholesale accounts as well as converting some outlets to directly operated shops.

More exclusive

The adoption of a more exclusive strategy, which led to a 10 per cent increase in average selling prices, “adversely affected third-quarter store traffic” for the brand in the Asia-Pacific region, Kering said.

Gucci's sales in China fell in the quarter, chief financial officer Jean-Marc Duplaix said on a call with reporters, declining to specify the drop.

“The elevation of the brand is clearly an ongoing process, and it will take time,” Mr Duplaix said on a call with analysts, echoing comments last week by LVMH CFO Jean-Jacques Guiony regarding Vuitton, whose sales grew less than 3 per cent between July and September on an organic basis.

Sales at the rest of Kering's luxury division, which includes Bottega Veneta, Saint Laurent and Balenciaga, also trailed estimates on a comparable basis.

Kering's performance confirms luxury growth is moderating in the second half of the year, according to Luca Solca, an analyst at Exane BNP Paribas in London.

The Puma sporting-goods brand performed better than expected as comparable sales declined only 0.8 per cent in the quarter, compared with the 2.3 per cent slide predicted by analysts.

Puma sales developed positively in North America, though remained under pressure in western Europe, Kering said. Puma is "on track" to meet its full-year sales guidance of a low-to-mid single-digit percentage decline in currency- adjusted sales, Mr Duplaix said on the analyst call.

Bloomberg