Kering Barely Beats Estimates with Help from Domestic Consumption in China

French luxury group Kering S.A., which owns Gucci, Yves Saint Laurent, Bottega Veneta, Balenciaga, Alexander McQueen, and others, released its first quarter earnings on April 17th after the markets closed in Paris. Investors had hoped that the luxury group would follow the same path as LVMH had the previous week, with its earnings beating expectations. Kering delivered, though only slightly.

At the end of 2018, Kering was one of the major luxury brands that avoided slowing revenue growth due to China. While some of its competitors lamented a decline in Chinese tourist shopping at their retail outlets, the conglomerates that have a significant presence in mainland China, like Kering and LVMH, continued to post impressive financial results in the year’s final quarter.

To start off 2019, the French luxury group noted that sales of its Gucci brand grew 20 percent year-on-year, while that of Bottega Veneta declined 8.9 percent in the same quarter. Despite the impressive revenue growth at Gucci, it was at a slower pace than the previous quarter, which saw revenue rise 28 percent year-on-year. Meanwhile, Bottega Veneta is undergoing changes with creative director Daniel Lee, who joined the company last summer, and the company expects the trend to reverse soon.

The group’s revenue increased 17.5 percent year-on-year on a comparable basis to $4.28 billion (€3.785 billion), just beating Wall Street estimates of €3.74 billion.

During the earnings call, Kering Financial Director Jean-Marc Duplaix said, “China for Gucci became the third online market,” following the U.K. and U.S. He also said that demand for the group’s products in China doesn’t appear to be slowing down. This is positive news for luxury companies that have a significant presence in mainland China to offset the decline in outbound travel shopping.

The group looks to continue gaining market share in mainland China with the help of its retail initiatives. At the start of the second quarter, Kering’s British fashion brand Alexander McQueen joined Tmall’s Luxury Pavilion, Alibaba’s dedicated site for high-end brands, in an effort to improve its e-commerce sales in the country.

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