Gucci drives forecast-beating sales growth at Kering

French luxury group Kering has delivered strong fourth-quarter sales at its Gucci brand, a significant profit driver, as 100th anniversary events and a new collection attracted shoppers, showing how the sector is prospering despite the pandemic.

The group’s shares rose 7 per cent in morning trading in Paris on Thursday, making it the biggest gainer on France’s blue-chip CAC 40 index.

The long-awaited comeback at Italian fashion house Gucci helped the group beat analysts’ expectations for annual sales and operating profit and propose a record dividend of €12 a share for 2021, from €8 a share in 2020.

The luxury goods sector has shrugged off the economic shock of the pandemic with affluent consumers in the US and China, its two largest markets, barely slowing their purchases of handbags, jewellery and clothing.

The biggest brands have been taking market share from smaller independent rivals after splashing out more on marketing and boosting their once sleepy ecommerce operations.

Kering’s annual net profit was in line with expectations at €3.2bn. Annual revenue came to €17.6bn, which was 35 per cent higher on a comparable basis than the pandemic trough of 2020, and up 13 per cent compared with pre-crisis 2019.

That is only just outpaced by the strong recovery at sector leader LVMH where organic revenue growth was 36 per cent last year compared with 2020, and 14 per cent higher than 2019.

The picture is less favourable, though, when Kering stacks up against LVMH’s fashion and leather goods division, home to its powerhouse brands Louis Vuitton and Dior. Sales at the LVMH unit rose to almost €31bn last year, or 42 per cent on a like-for-like basis from 2019. That compares with Gucci’s 2021 revenue of €9.7bn, which was 10 per cent higher on a comparable basis relative to 2019.

“We are not yet where we want to be but we are definitely going in the right direction,” said Kering chief executive François-Henri Pinault, adding that the group was “very confident” it would “extend the rebound” that started last year.

Kering’s results may prove a boost to the group controlled by the billionaire Pinault family and help it narrow the valuation gap that has opened with competitors.

Before the results announcement, Kering shares had risen about 18 per cent since the pandemic struck in early 2020, compared with a 71 per cent rise for LVMH and a 114 per cent rise for Hermès. The shares also traded at about a 22 times forward price-to-earnings ratio, a discount of roughly a fifth to LVMH and two-thirds to Hermès.

“Gucci is on the right track,” said Citi analyst Thomas Chauvet in a note. “While it is too early to conclude on the success of Gucci’s ‘new chapter’ of growth (the next two to three quarters will be key), the retail growth gap between Gucci and best-in-class peers has narrowed.”

Investors have been worried about the performance of Gucci, which accounts for more than half of group sales and the majority of profits, because its growth has slowed after years of strong gains driven by popular designs from creative director Alessandro Michele.

“This is a small beat at Gucci and Saint Laurent and the margins are in line,” said Flavio Cereda, Jefferies analyst. “These are not bad numbers at all but the gap with sector leaders is still very much there.”

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