PARIS — After two of its biggest and buzziest brands fizzled in the fourth quarter, Kering executives played up the potential for creative renewal and upscaling at Gucci, and held out hope for a quick rebound from the advertising scandal at Balenciaga.
“I’m not going to pretend that the results we are presenting today are up to our ambitions, or that I am satisfied,” François-Henri Pinault, chairman and chief executive officer of Kering, told analysts Wednesday after reporting a 7 percent drop in the group’s fourth-quarter results. “They are not at the level of our expectations and potential.”
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The numbers came in below consensus expectations, trailed its bigger luxury rivals, and represented a sharp slowdown from the third quarter, when Kering reported sales gained 23 percent.
By comparison, Gucci revenues were up 9 percent on a like-for-like basis in the third quarter, following a 4 percent rise in the second quarter.
Kering’s shares rose 3 percent to close at 578.40 euros on Wednesday.
The Italian brand is in a transition period, having parted ways with its longtime creative director Alessandro Michele last November. His successor Sabato De Sarno, previously a designer at Valentino, is to unveil his first effort in September during Milan Fashion Week.
During a conference call with analysts, Pinault was peppered with questions about why Gucci chose De Sarno — and how it will prop up momentum until his first designs arrive in stores in early 2024.
“Gucci’s status as one of the world’s top megabrands is secure,” Pinault asserted, noting its revenues reached 10.49 billion euros last year, increasing 1 percent on a comparable basis.
The executive revealed that Gucci would target luxury’s biggest spenders in 2023 with the launch of Salon, permanent and temporary spaces where high-rollers can order bespoke luggage, exotic leather goods, furniture and high jewelry, with prices ranging from about 40,000 euros to 3 million euros.
He said a permanent Salon is slated to open on Melrose Avenue in Los Angeles in April, while flagship boutiques might dedicate a floor to this elite level of clienteling. He characterized it as the latest step in Gucci’s product elevation drive, with its average selling price rising double-digits last year.
Pinault lifted the veil on Kering’s recruitment process at Gucci, revealing that candidates were asked to submit two proposals for the 102-year-old brand: one from scratch to project the brand into the future, and a second one based on archival Gucci items, to see how he or she might blend heritage and modernity.
De Sarno demonstrated modernity in his vision and identified a path to strengthen Gucci’s fashion authority, while building the timeless component of the brand, the executive enthused.
Even before De Sarno’s recruitment, Gucci had put a brighter spotlight on menswear, breaking away from the biannual coed shows Michele favored, and leveraged its history in luggage with a dedicated travel boutique in Paris and a major campaign featuring actor Ryan Gosling.
Pinault also touted a strong pipeline of activations this year, including campaigns for the Horsebit 55, the Bamboo bag and Guilty fragrance for men, in addition to its cruise fashion show in Seoul in May and a roving heritage exhibition called Gucci Cosmos debuting in Shanghai this spring.
“It makes me very confident that we can resume the growth trajectory at Gucci,” he concluded.
“On Gucci, the main takeaway is that the group expects to be able to deliver an improving EBIT margin in 2023 versus 2022,” Barclay analyst Carole Madjo said in a research note, characterizing the analyst call as “reassuring.”
Balenciaga, which triggered outrage with two ad campaigns last November and logged a “difficult” December, is lumped in with Kering’s “other houses,” which recorded a 4 percent revenue decline in the fourth quarter.
One campaign featured children posing alongside logo beer glasses and teddy bears dressed in bondage gear. Another included a handbag resting on a page from the 2008 Supreme Court ruling “United States v. Williams,” which confirmed the promotion of child pornography as illegal and not protected by freedom of speech.
“We made a clear error of judgment,” Pinault admitted. “I take full responsibility for this episode. And I present our apologies to anyone who was affected.”
Asked at a later press briefing if there would be any personnel changes in the wake of the crisis, Pinault related that he has been asked may times why heads didn’t roll. “We all have the right to make mistakes,” he insisted.
Jean-François Palus, group managing director, said Kering has appointed a “best-in-class” agency to supervise marketing content at Balenciaga, and it is contemplating the creation of a position at the group level in charge of “brand safety.”
“The impact of the controversy is fading away,” Palus asserted. “We think this should be over in the course of the second quarter.”
Pinault noted that the consumer backlash was most intense in the U.S., U.K. and Middle East, with marketing activities at Balenciaga continuing unabated in Asia Pacific.
“I am very confident that with the talent of [creative director] Demna and the leadership of [CEO Cédric Charbit] that we will overcome these very difficult issues that we had in December,” he added.
Kering flagged “good momentum” at Bottega Veneta, which recorded a 6 percent increase in the fourth quarter, while Yves Saint Laurent rose 4 percent on a comparable basis. Revenues at the “Kering Eyewear and corporate” segment advanced 28 percent in the three-month period.
Net profit attributable to the group rose 14 percent to 3.61 billion euros, while recurring operating income improved 11 percent to 5.59 billion euros.
Saint Laurent was the biggest contributor to EBIT growth in 2022, and the star performer of the year, with revenues advancing 23 percent to reach 3.3 billion euros, bringing it closer to the 5 billion target Kering disclosed at a capital markets day last year.
Pinault noted the brand is making progress with its own upscaling drive, touting brisk sales of quilted leather Icare handbags at 3,900 euros a pop.
For full-year 2022, revenues at Kering rose 9 percent on a comparable basis to 20.35 billion euros.
By region, Western Europe logged the biggest gain at 56 percent year-on-year as wealthy Americans descended on the continent to take advantage of a strong dollar. Japan gained 25 percent and North America 4 percent, while Asia Pacific declined 7 percent amid coronavirus-related disruptions.
Quizzed about more recent trading in the latter region, Jean-Marc Duplaix, group chief financial officer, touted “better than expected” sales for Chinese New Year and “a strong rebound in purchasing in greater China,” adding up to a “quite encouraging start to the year.”
Pinault, who visited four Chinese cities last month, as reported, related that malls and streets are full of people. Meanwhile, meetings with government officials revealed an openness to international businesses and high levels of support for domestic consumption.
“It looks like they are really, really committed to bring back China at a level of growth that is much higher than what it was last year,” he said.
Kering is the last of Europe’s three biggest luxury conglomerates to report end-of-the-year results.
Last month, LVMH Moët Hennessy Louis Vuitton said revenues rose 15 percent in the fourth quarter to 22.7 billion euros, an increase of 9 percent at constant exchange rates. Its fashion and leather goods businesses posted a 10 percent rise in organic revenues.
Compagnie Financière Richemont reported sales gained 5 percent during the holiday selling period, with its jewelry and fashion maisons offsetting weakness in watches.
Hermès International is due to report its fourth-quarter numbers on Friday.
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