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French luxury group Kering failed to arrest a slide in sales in the fourth quarter, underlining the pressure on the company to revive the fortunes of its flagship Gucci brand.
The company said on Thursday that revenues dropped 6 per cent to €4.97bn in the three months to the end of December, with sales of all of its major brands declining in what was a much more testing year for the luxury sector that boomed during the pandemic.
Sales at its Gucci, Bottega Veneta and Yves Saint Laurent brands were each down 8 per cent in the period from the final quarter of 2022.
Kering, which is led by French billionaire François-Henri Pinault, said it had seen some “sequential” improvement in sales in North America and Asia-Pacific during the fourth quarter.
“In a trying year for the group, we strengthened our organisation and took significant steps to further enhance the visibility and exclusivity of our houses. We are focused on revitalising Gucci,” said Pinault, whose family controls the group.
Kering said that an investment strategy focused on “supporting the long-term development and growth of its houses” would weigh on the group’s full-year operating income next year, which it expected would decline from 2023 levels.
“In a market environment that remains uncertain in early 2024, our continuing investments in our houses will put pressure on our results in the short term,” Pinault said.
Kering’s group performance for the quarter was slightly above analyst expectations while the fall in Gucci sales matched forecasts, according to estimates compiled by Citigroup.
The still lacklustre showing, however, is in contrast to larger rival LVMH, which managed to increase sales 10 per cent during the period even as the industry’s pandemic-driven surge deflated.
UBS expects luxury sector sales growth to slow to an average of 5 per cent in 2024, after delivering an average of 10 per cent organic growth across the luxury market each year since 2016.
Kering has “a lot of hard work ahead”, noted Thomas Chauvet, analyst at Citi, saying that there was “greater-than-expected margin pressures at Gucci, Bottega Veneta and Balenciaga” in the second half of last year.
For the whole of 2023, Kering’s sales declined by 4 per cent to €19.56bn, while recurring operating income dropped 15 per cent to €4.75bn
Gucci’s recurring operating margin was at 33 per cent in 2023, falling back from 35 in the first half of the year, as ambitions to turn around the brand were complicated by a tougher environment for the luxury sector.
Collections from new Gucci designer Sabato do Sarno have yet to land in stores and so were not reflected in Kering’s results.
Gucci is one of luxury’s megabrands with more than €10bn in annual sales, but it has been outpaced in recent years by rivals such as LVMH’s Louis Vuitton and Chanel.
Kering is also in the process of scaling back its wholesale operations, which should give it more control over stock and pricing in the longer term but was a drag on sales notably at Yves Saint Laurent and Bottega last year.
Its jewellery divisions posted double-digit growth in the fourth quarter, while its eyewear division was a bright spot, hitting a new record of €1.5bn in sales for the year.
Shares were up 0.9 per cent to €393.7 in early Paris trading.
