October 23, 2018 / 4:14 PM / in 6 months

Gucci clings on as luxury's star brand as China worries mount

PARIS (Reuters) - Demand for Gucci handbags fell from recent highs but proved more resilient than expected in the third quarter, extending a strong sales run at parent Kering (PRTP.PA) for the time being as markets fret that momentum in the luxury sector is petering out.

A Gucci sign is seen outside a shop in Paris, France, December 18, 2017. REUTERS/Charles Platiau

Manufacturers of high-end goods are in the spotlight as concerns grow that a trade war between Beijing and Washington will curb spending by Chinese shoppers, after sparking a stock market selloff and falls in the yuan.

Kering’s financial director Jean-Marc Duplaix said the group’s main brands, which also include Saint Laurent, had their best quarter yet this year however in terms of the pace of sales growth in mainland China.

“We didn’t see any kind of massive deceleration,” Duplaix told an analyst conference call, pointing to encouraging underlying trends in demographics and spending patterns.

Gucci, meanwhile, trumped forecasts, retaining its crown as one of the fashion world’s fastest-growing brands following a makeover under designer Alessandro Michele with a part “geek chic”, part baroque style.

Comparable sales rose 35.1 percent in the July to September period - a slowdown compared to the rates of over 40 percent notched up in recent quarters, but far faster than top rivals such as LVMH’s (LVMH.PA) Louis Vuitton.

That pace is only likely to slow further, however, against tougher comparisons. Pressed by analysts, Duplaix confirmed that assumptions of around 25 percent sales growth in the fourth quarter would not be far off.

Kering is among the luxury groups that has so far benefited the most as an increasing number of young, middle class Chinese customers plow their earnings into high-end goods.

Its shares, which closed down 3.79 percent on Tuesday before the sales figures were published, have fallen more than 30 percent since hitting record highs in mid-June as fears of a slowdown rattle the sector.


Though Kering has long flagged that Gucci’s momentum would ease - the brand’s boss Marco Bizzarri even addressed sales staff to that effect in September - the group relies overwhelmingly on the label to drive sales and profits, adding to scrutiny over signs of weakness.

Gucci’s performance, for instance, helped offset a worsening situation in the third quarter at high-end handbag maker Bottega Veneta, which Kering is trying to patch up under a new designer.

Overall revenue at the group reached 3.4 billion euros ($3.90 billion) in the July to September period, and increased a better-than-expected 27.5 percent on a comparable basis.

Other brands owned by the Paris-based conglomerate are on the up, including Balenciaga, which scored a hit in recent years with chunky luxury sneakers.

But although Balenciaga’s annual sales are now not “far off” reaching the 1 billion euro-mark, according to Duplaix, Gucci is still more than six times bigger.

A woman is seen inside a Gucci store in Paris, France, December 18, 2017. REUTERS/Charles Platiau

Kering was among luxury players that looked at a possible acquisition of Versace, before the Italian fashion label was sold to U.S-based Michael Kors in September, but baulked at the price tag, sources told Reuters at the time.

Duplaix said the company was still focused on organic growth, but did not rule out eventually adding to the group’s portfolio, saying Kering had the financial strength to do so if needed.

($1 = 0.8712 euros)

Reporting by Sarah White and Pascale Denis; Editing by Sudip Kar-Gupta, Alexandra Hudson and David Evans

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