Kering growth fuelled by Gucci and China
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Kering growth fuelled by Gucci and China

French luxury giant Kering posted quarterly earnings last week that met expectations and reiterated two major narratives around the company: Gucci’s growth is incredible, and Chinese demand is phenomenal. Of course, we already knew both of these things: Gucci was an outperformer last time Kering reported, and luxury rival LVMH’s recent quarterly earnings demonstrated the robustness of the Chinese market. That being said, it is more positive news for the luxury sector, as another of its biggest bellwethers is looking strong.

Kering’s share price has appreciated by 28% so far this year

graph 3007 kering

SOURCE: Yahoo Finance

In the second quarter, sales rose by 32% year on year to €3.3 billion. That’s pretty much in line with what analysts were expecting, and, like LVMH’s recent results, it’s largely down to demand in China. The other factor in Kering’s growth is, of course, Gucci.

Growth at the brand came in below expectations (40%, year on year). That’s also a slowdown against last quarter, when it managed to grow by 49% against the comparable figure. But investors need to cut the brand some slack: Gucci’s incredible outperformance is making it hard to keep overshooting what are increasingly strong comparable periods, and most of its rivals can only envy its momentum.

Kering, of course, realizes that Gucci can’t continue its trajectory of exponential growth. Hence, it has divested itself of all but the most luxurious luxury brands in an effort to hew towards higher profit margins and boost its bottom line. On Thursday, the company expanded on this strategy, filling in a few gaps for investors. The group’s managing director, Jean-Francois Palus, said on a call: “The common pattern of those brands is that we did not fully control them. We do not intend to dispose of any other brands of our current portfolio.”

Disclosure

Dominion holds Kering in its Global Trends Luxury Fund.


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