Saint Laurent, Bottega Veneta hand Kering earnings beat despite Gucci drag
News Summary
French luxury group Kering reported a 5% drop in like-for-like sales for the third quarter, beating market expectations thanks to the strong performance of its smaller brands, despite ongoing struggles at its flagship label, Gucci. Gucci's sales fell 14%, marking its seventh consecutive quarterly double-digit decline. However, Kering's comments on sequential improvement in key markets like China and the United States, alongside rival LVMH's better-than-expected sales report last week, fueled renewed optimism in the luxury sector. Under newly appointed CEO Luca de Meo, Kering is accelerating a turnaround, which includes the recent $4.7 billion sale of its beauty arm to L'Oréal. Gucci has also rolled out a "see now, buy now" collection to regain momentum. While the collection was praised by fashion observers and led to an uptick in store traffic, Kering cautioned that a significant uplift in sales would take time.
Background
Kering is a global French luxury group that owns prominent brands such as Gucci, Saint Laurent, and Bottega Veneta. Gucci serves as Kering's flagship brand, contributing over half of the group's profits. In recent years, the global luxury sector has experienced a prolonged slump, particularly in the Chinese market and among aspirational consumers. Luca de Meo was recently appointed as Kering's new CEO with the mandate to accelerate the group's turnaround and revitalization, following two consecutive years of declining sales.
In-Depth AI Insights
Beyond the immediate earnings beat, what deeper investment implications does Kering's reliance on smaller brands and Gucci's ongoing challenges signal about its broader portfolio strategy and the luxury market's shifting dynamics? - Portfolio Resilience vs. Risk: Kering's earnings beat, driven by Saint Laurent and Bottega Veneta, highlights the resilience of its brand portfolio. However, Gucci's seventh consecutive quarter of double-digit decline as the core profit engine underscores the inherent risks of over-reliance on a single 'mega-brand.' Investors should watch how Kering balances investment in Gucci with support for its other growth brands to diversify risk. - Evolving Consumer Preferences: The strong performance of smaller brands might indicate a subtle shift in luxury consumer preferences. In an increasingly mature and individualized market, consumers may be gravitating towards "less is more" or more exclusive brands, rather than those that have become overly ubiquitous. This could prompt Kering to re-evaluate its brand positioning and marketing strategies. - Urgency of Turnaround Execution: While the new creative director and "see now, buy now" initiatives have been well-received, a significant uplift in Gucci's sales will take time, placing immense pressure on new CEO de Meo. Investors need to closely monitor the actual execution and effectiveness of his restructuring measures, particularly how they fundamentally reshape Gucci's brand appeal and market competitiveness. How does the reported "sequential improvement" in China, combined with LVMH's positive results, influence the investment outlook for Kering and the broader luxury sector, especially under the current Trump administration's trade policies? - Critical Driver from China: The "substantial sequential improvement" in China is a crucial signal for luxury's recovery. Given China's dominant role in global luxury consumption, a sustained rebound would provide a powerful growth impetus for Kering and the entire sector, easing investor anxieties about a prolonged slump. This will be a core factor supporting a re-rating of luxury stocks. - Sector Confidence Boost: LVMH's strong performance, coupled with Kering's improved China trends, paints a picture of a potential bottoming out for the industry. This positive signaling is likely to encourage investors to re-evaluate luxury equities, anticipating a cyclical recovery. However, with the Trump administration in 2025 potentially pursuing protectionist trade policies, such as tariffs on specific goods, and general geopolitical tensions, global supply chains and consumer confidence could still face uncertainties, posing a potential risk to the highly globalized luxury industry. - Rebalancing Regional Strategies: If the recovery in China gains strong momentum, Kering may further optimize its regional market strategies, allocating more resources to the Chinese and broader Asian markets. Simultaneously, with increased global economic uncertainty, the performance of European and North American markets and their appeal to high-end consumers will be key metrics for assessing the balance of Kering's global strategy.