July 28, 2020 / 3:55 PM / 14 days ago

Gucci owner Kering says outlook unclear as virus hammers sales

MILAN/PARIS (Reuters) - French luxury group Kering (PRTP.PA) said on Tuesday second-quarter comparable sales plunged by 43.7% 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.

FILE PHOTO: An employee stands outside a Gucci store on the first day of the phase two re-opening of businesses following the outbreak of the coronavirus disease (COVID-19), in the Manhattan borough of New York City, New York, U.S., June 22, 2020. REUTERS/Carlo Allegri

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% fall.

Rival LVMH (LVMH.PA) managed to limit its own sales decline to 38%, though its operating margins were hit hard, limping in at 9% while Kering’s shrank to 17.7%.

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% to 70% since May.

Chinese shoppers accounted for 37% of luxury goods sales in 2019, though they made the bulk of their purchases while travelling 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% 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% while Bottega Veneta contained the drop in revenue to 24.4%.

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% of revenue in the second quarter, up from under 10% at the start of the year, Duplaix said.

Shares in Kering closed down 2.7% on Tuesday ahead of the release, dragged down by investors’ disappointment with the bigger-than-expected drop in core profits at LVMH.

Reporting by Silvia Aloisi, Editing by Sarah White and Emelia Sithole-Matarise

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