Kering sales hit by weaker Gucci performance in China and Balenciaga controversy

Sales at luxury group Kering have picked up since the beginning of the year, its chief executive said, after they were dragged down by lacklustre performance at Gucci in China and Balenciaga was mired in controversy.

Like-for-like sales at the Paris-based group fell 7 per cent in the fourth quarter, while Gucci’s sales shrank 14 per cent year on year, largely because of the impact of Covid-19 lockdowns in China. Analysts had predicted they would fall by 11 per cent.

But François-Henri Pinault, the group’s chief executive, said: “We’ve seen a remarkable inflection compared to the trajectory in December, which was very affected notably by the policies and the health crisis in China.

“Chinese new year [sales] went well, better than we had anticipated . . . The malls are packed, people have moved on to other things,” he added, having visited the country in January.

Separately, Balenciaga, which had an “excellent 2022”, took a sales hit two months ago after it ran an advertising campaign featuring children with plush toys in bondage gear.

“It impacted Balenciaga a lot in December, especially in the US, the Middle East and the UK, though there was no reaction in Asian markets,” Pinault said. “Now the house has a lot of work to do to restore its image in Anglo-Saxon markets.”

He added: “I’ve been asked why heads didn’t roll over this . . . We are allowed a mistake at a group like Kering, we are not allowed to make the same mistake twice, but we are allowed a mistake.”

Kering, which pulled the ads and apologised at the time, will create a new executive position to oversee “brand safety” following the scandal.

The group does not break out numbers for its smaller brands such as Balenciaga and Alexander McQueen.

For the full year, revenues at Gucci rose 1 per cent to surpass the symbolic €10bn mark for the first time, accounting for half of Kering’s total revenue. Recurring operating income was flat at €3.7bn.

Pinault, whose family controls the group, said the performance of the various Kering brands was “not uniformly up to our ambitions and potential . . . [but] we are convinced that we are pursuing the right strategy for the long term”.

Overall Kering’s sales rose 9 per cent last year on a comparable basis to exceed €20bn in 2022, thanks to growth in western Europe and Japan. Net profits rose 14 per cent to €3.6bn.

Revenues at the group’s second biggest label, Saint Laurent, rose by nearly a quarter to €3.3bn.

Gucci is in the midst of a change of leadership. At the end of January the brand announced the appointment of a new creative director, Sabato De Sarno, after it split abruptly from its star creative director Alessandro Michele in November.

De Sarno will join in the second quarter and show his first collections in September. He will have the challenging task of improving performance.

Gucci had grown steadily from 2015 until the start of the coronavirus pandemic and gathered a strong celebrity following. But it has struggled recently to keep pace with rivals LVMH and Hermès in recent years, despite record customer spending on luxury.

Citi analyst Thomas Chauvet said: “On paper, Kering should benefit more than peers from China’s reopening and global travel recovery, but this could be offset by Gucci’s transition.”

Kering’s board will ask shareholders to approve a €14-a-share cash dividend for the year, topping up a €4.50-a-share dividend that was paid in mid-January.

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