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Kering sales fell 9 per cent on a comparable basis to €4.46 billion in the third quarter of 2023, the company said on Tuesday, falling below analyst expectations of a 6 per cent decline. An ongoing turnaround effort at star brand Gucci and weakened demand contributed to the losses, which have put an official end to luxury’s recent sales surge.
Sales were down across the luxury group’s stable of fashion brands. Gucci’s revenue was down 7 per cent to €2.2 billion. Saint Laurent sales fell 12 per cent, with retail sales down 4 per cent and wholesale down 38 per cent, while Bottega Veneta sales decreased 7 per cent. The “Other Houses” division, including Balenciaga and Alexander McQueen, fell 15 per cent. “With Gucci at the start of a new chapter, its weak quarterly performance was as expected while Saint Laurent, Bottega Veneta, and Balenciaga were impacted by weaker retail like-for-like and increased wholesale rationalisation,” wrote Thomas Chauvet, Citi’s head of luxury and consumer discretionary research.
Kering has underperformed compared to its competitors. LVMH reported a sales increase of 9 per cent (which fell short of expectations), while Hermès posted sales up 16 per cent.
“Beyond the challenging macroeconomic conditions and softening demand across the luxury industry, the change in our revenue performance in the third quarter reflects the impact of our decisions to further elevate our brands and their distribution. The organisation we put in place in July will enable us to strengthen the steering of our houses in the current market environment and to reclaim our positions and influence,” Kering chairman and CEO François-Henri Pinault said in a statement.
By region, Kering retail sales in North America fell 21 per cent in the third quarter, Western Europe was down 10 per cent and Asia Pacific rose 1 per cent excluding Japan, which was up 28 per cent, and the rest of the world down 4 per cent. “We see some pressure on the traffic in North America in stores but also online. Online is clearly quite a drag on the North American market,” Kering director of financial communications and market intelligence Claire Roblet told analysts on Tuesday night.
Gucci, Kering’s largest brand and former unstoppable force is at the start of its next chapter. The industry is watching with interest. Sabato De Sarno’s debut Spring/Summer 2024 collection for Gucci presented at Milan Fashion Week was “well received” by “Gucci buyers and also the professional buyers from the wholesale accounts” and had “very positive” engagement on social media with reach, “which was far above the recent fashion shows of Gucci”, Duplaix said.
He noted that 70 per cent of the sales of leather goods in Q3 at Gucci came from carryover and evergreen products. “It means that, of course, you have some clients who were absolutely, completely in love with the design and aesthetic of Alessandro Michele, but major parts of the clients are buying Gucci products and not Sabato De Sarno, Alessandro Michele or Frida Giannini products,” Duplaix said, confirming the goal is to build a following around the brand and not any one designer.
It’s also a new executive era at Gucci after the departure of Marco Bizzarri. Jean-François Palus became interim CEO as part of an executive reshuffle announced in July, and the search for a permanent CEO “is not so far a priority, and the focus is on first and foremost about the execution of the strategy”, Duplaix said. Expect, however, some new appointments going forward. “It’s not a complete reset of the organisation. It’s more about having some talent here and there where we feel that there is a need,” he added.
As part of the group reorganisation, Francesca Bellettini was promoted to Kering deputy CEO while maintaining her role as Saint Laurent CEO. Asked by analysts if she has “too much on her plate”, Duplaix answered: “Francesca is already involved in a new role at Kering but is maintaining her leadership of Saint Laurent, which is very important because it does allow her to stay grounded in operation, a very important factor to steer the development of all the other brands, and also to continue to manage Saint Laurent in this period, which is more challenging for the industry and also for the brand for specific reasons.”
Asked about the underperformance of Saint Laurent compared to peers, while it shined in the same quarter last year, Duplaix cited the wholesale pullback and exposure to Western Europe and North America (57 per cent of sales combined). “It’s true that there’s probably less products to buy [for aspirational customers],” he also noted, flagging the higher price point.
Kering also noted that it is on target to finalise its acquisition of a 30 per cent stake in Valentino before the end of the year.
Analysts are expecting improvements ahead. “Kering’s equity story revolving around Gucci’s rejuvenation under a new creative vision and management team, together with a change in the group’s organisational structure, hidden value at Saint Laurent, Bottega Veneta and Balenciaga and potential for further M&A in beauty and fashion and capital returns, should unlock value over time, we think.”
The analyst added: “While a more uncertain macro and geopolitical environment might delay early signs of Gucci’s renaissance, Kering has demonstrated an ability to execute various brand turnarounds over the past decade and to elevate relatively unknown creative talents.”
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