Kering beats the street thanks to Chinese consumers – and that’s good for luxury
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Kering beats the street thanks to Chinese consumers – and that’s good for luxury

Luxury giant Kering, the company behind brands like Gucci and Saint Laurent, reported strong earnings for the third quarter of 2018, beating analysts’ expectations and sending a reassuring message over China’s continuing appetite for luxury goods. That’s an important message to the wider sector: Chinese shoppers account for a full third of all luxury purchases, and a number of luxury companies have seen their share price decline over worries that spending will dry up as trade tensions show no sign of abating.

Kering’s share price jumped this week on strong third-quarter results

kering graph 251018

Source: Yahoo Finance

Kering said sales were up by 27.5% against the same quarter in the previous year, hitting 3.4 billion euros. That’s a significant beat against the Street’s prediction for a sales rise of 22.5%. Once more, Gucci was the outperformer, where sales increased by 35.1% year on year. That strong performance comes despite management’s recent warning that growth at the brand can’t continue at these stratospheric levels forever.

Balenciaga remained the company’s fastest-growing brand, with sales growth of more-than 50% against the third quarter of 2017 (nonetheless, a slowdown against its previous pace of growth). Saint Laurent also saw strong – albeit, slowing – performance, seeing a revenue rise of 16% year on year.

Kering’s CEO, Jean-Marc Duplaix, was keen to offer his opinion on what was, undoubtedly, the main talking point of these results: China. On the company’s earnings call, he said: “Everyone is waiting for the materialization of these tensions. We don’t see it at this point. In terms of spending power, the situation is still quite sound in China. The demographics should help as well.” Mr. Duplaix added that the company was actually seeing an improvement in retention rates when it came to Chinese millennials.

He concluded: “All the events especially in China we had in September or in October, we saw quite good figures. I think that underlying trends are still very, very, very solid.”

Disclosure
Dominion holds Kering in its Global Trends Luxury Fund.


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