An employee stands outside a Gucci store on the first day of the phase two re-opening of businesses in the Manhattan borough of New York City, New York, U.S., June 22, 2020.Carlo Allegri/Reuters
French luxury group Kering said on Tuesday second-quarter comparable sales plunged by 43.7 per cent due to the COVID-19 pandemic, adding it could not provide a forecast for the second half of the year despite an encouraging recovery in Asia.
The sales drop at the conglomerate that owns Gucci was a touch better than analyst expectations, with those at UBS citing a consensus for a 46 per cent fall.
Rival LVMH managed to limit its own sales decline to 38 per cent, though its operating margins were hit hard, limping in at 9 per cent while Kering’s shrank to 17.7 per cent.
Analysts said that was partly due to Kering’s higher dependence on third-party manufacturing, which helped it mitigate the impact of fixed costs when its factories had to close because of the health crisis.
Kering said in a statement that it lacked enough visibility to forecast revenue trends or margins for the rest of the year, while Chief Financial Officer Jean-Marc Duplaix told reporters the absence of tourist flows would weigh on the industry for some time yet.
“The loss in revenue experienced in the first six months of the year should not be offset in the second half,” the company said.
However, Duplaix said sales momentum had picked up in June in all regions as lockdowns eased, with the group’s brands doing particularly well in China - average sales growth there ranged from 40 per cent to 70 per cent since May.
Chinese shoppers accounted for 37 per cent of luxury goods sales in 2019, though they made the bulk of their purchases while traveling abroad. Kering, like LVMH, said that the strong growth in local shopping could not offset the near-absence of tourism.
It is cutting costs, while not canning investments in its brands altogether, which usually spend on marketing campaigns and events like fashion shows that give them visibility.
Sales at Kering’s top brand Gucci in the April to June period declined by 45 per cent on a like-for-like basis, which strips out the impact of currency swings and acquisitions.
Yves Saint Laurent suffered an even bigger fall of 48 per cent while Bottega Veneta contained the drop in revenue to 24.4 per cent.
Like rivals, Kering had to temporarily close shops and put manufacturing sites on stand-by as the virus spread from the key Chinese market to Europe and the United States.
Its online sales bounced, however, and accounted for 18 per cent of revenue in the second quarter, up from under 10 per cent at the start of the year, Duplaix said.
Shares in Kering closed down 2.7 per cent on Tuesday ahead of the release, dragged down by investors’ disappointment with the bigger-than-expected drop in core profits at LVMH.
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