Another Luxury Retail Brand Cites Tourism Spending as Reason for Slump
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French luxury-goods maker Kering SA reported first-quarter revenue that trailed analysts’ estimates as slowing tourism and the strong dollar weighed on demand for Gucci loafers and Bottega Veneta handbags.
Sales climbed 2.7 percent to 2.72 billion euros ($3.07 billion), Paris-based Kering said in a statement after European markets closed Thursday. Analysts predicted 2.78 billion euros, according to estimates compiled by Bloomberg. Growth was 4 percent on a basis that excludes currency shifts, acquisitions and disposals, compared with the 5.6 percent gain anticipated by analysts.
Gucci Chief Executive Officer Marco Bizzarri and creative director Alessandro Michele turned Kering’s largest brand around by the end of their first year in charge. Their next challenge is to keep momentum going as a slowdown in China, the strong dollar as well as terrorist attacks in Europe have crimped demand for handbags and garments. Those same headwinds hurt competitor LVMH, whose first-quarter sales also missed estimates.
Gucci’s comparable sales rose 3.1 percent, slowing from the previous quarter’s 4.8 percent gain. With Michele’s designs accounting for about half of sales in the period, the second straight quarter of growth confirms the turnaround “is starting to get traction,” said Luca Solca, an analyst at Exane BNP Paribas. However, the slower pace shows “Rome wasn’t built in a day.”
Trends Improved
The company said in a conference call that sales trends at Gucci have improved since the end of March.
The biggest disappointment was handbag maker Bottega Veneta, which reported another quarter of declining sales. Revenue fell 8.3 percent, more than twice the decline anticipated by analysts. The brand is suffering from overexposure to Hong Kong and high price gaps between Europe and Asia, along with a slowdown in tourism.
Bottega may need “more creativity and innovation,” said Exane’s Solca. “Lacking that, the risk could be of appearing boring to consumers.”
Yves Saint Laurent, which replaced its creative director this month, was again the best performer, posting a 27 percent increase in sales that beat analysts’ expectations.
“We are confident that we can extend our growth trajectory over the full year,” Kering CEO Francois-Henri Pinault said in the statement.
Kering’s shares fell 0.8 percent to 160.10 euros at the close in Paris.
Questions & Answers
Q.Which specific brands within Kering were most affected by the overall slump in sales?
Which specific brands within Kering were most affected by the overall slump in sales?
Bottega Veneta was the biggest disappointment, reporting an 8.3 percent decline in revenue. Gucci's comparable sales growth also slowed to 3.1 percent, down from 4.8 percent in the previous quarter.
Q.What factors did Kering attribute to the weaker-than-expected sales performance?
What factors did Kering attribute to the weaker-than-expected sales performance?
Slowing tourism, the strong dollar, and terrorist attacks in Europe were cited as reasons for decreased demand. A slowdown in China also contributed to the challenges faced by Kering's brands.
Q.Which brand under the Kering umbrella performed exceptionally well despite the challenging market conditions?
Which brand under the Kering umbrella performed exceptionally well despite the challenging market conditions?
Yves Saint Laurent was the best performer, achieving a 27 percent increase in sales. This figure also surpassed analysts' expectations, highlighting its strong individual growth trajectory.
Q.What is the primary reason Bottega Veneta is struggling according to the article?
What is the primary reason Bottega Veneta is struggling according to the article?
Bottega Veneta is suffering from overexposure in Hong Kong and significant price differences between Europe and Asia. A slowdown in tourism is also contributing to its declining sales performance.
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