February 13, 2018 / 8:16 AM / 12 days ago

Gucci helps Kering fashion strong sales growth

PARIS (Reuters) - Kering, owner of the Gucci brand, reported better than expected sales growth in the fourth quarter and said 2018 should be another solid year as it refocuses on luxury and boosts other fashion labels including Balenciaga.

Echoing rivals in the luxury goods industry including fellow French group LVMH, Kering benefited from a recovery in demand from Chinese consumers.

Rising online sales also propelled growth last year, as did growing appetite from younger shoppers, whose enthusiasm for Italian fashion house Gucci’s flamboyant style has made it one of the world’s fastest-growing labels.

These trends extended into January, Kering boss Francois-Henri Pinault said, although the group cautioned that a strong euro could weigh on its performance and growth at the likes of Gucci is likely to slow from the blistering pace of 2017.

“I‘m convinced our brands will do noticeably better than the market,” Chairman and Chief Executive Pinault told a news conference. Growth would be sought by improving performance at stores and selectively opening new ones, rather than via acquisitions.

Consultancy Bain forecasts that sales of personal luxury goods, such as handbags, jewels or shoes, should grow 6 percent globally at constant exchange rates in 2018. Kering rivals including LVMH and Hermes have also been upbeat on prospects for this year.

Shares in Kering -- which hit a record high of 417.40 euros in January and surged more than 80 percent last year -- were down 3 percent by 1425 GMT however, making it the biggest loser on France’s blue-chip index. LVMH also fell.

That came in spite of a 30 percent dividend hike to 6 euros a share at Kering, which will also spin out German sportwear brand Puma to its shareholders in May, retaining only a 16 percent stake.

Analysts gave generally positive reactions to Kering’s results, but Exane BNP Paribas said the company might find it harder to come up with “positive surprises” in 2018.

GUCCI FEVER

Pinault said Gucci could still notch up double-digit growth this year. Fourth quarter comparable sales at Gucci rose nearly 43 percent, beating forecasts and most industry peers.

A Gucci sign is seen outside a shop in Paris, France, December 18, 2017. REUTERS/Charles Platiau/Files

Gucci was revamped with a colourful, almost kitsch new style over the past two years under designer Alessandro Michele and recently branched into homeware, with 295 euro mugs in butterfly motifs.

In the notoriously fickle world of fashion, however, Gucci’s success has raised questions over how long demand will last, even as the brand collaborates with other designers.

“The brand has an even greater potential than had been estimated, we need to build it up over time,” Pinault told journalists. He said the label’s strategic plan would be updated by the end of the year or early 2019.

Kering managers said the group had not yet set aside any provisions linked to a tax investigation into whether some Gucci revenues should have been taxed in Italy.

The probe was at an early stage and the firm had not been notified of any amounts at stake, Pinault said, adding that Kering was confident Gucci had complied with its obligations.

BALENCIAGA IN FOCUS

Overall revenues at Kering rose to 4.26 billion euros ($5.25 billion) in the fourth quarter, up 27.4 percent year-on-year on a comparable basis, which strips out acquisitions and currency swings.

That marked a slight slowdown from the 28.4 percent growth notched up in the previous three months but beat forecasts.

Kering’s high-end fashion labels - with the exception of leather goods specialist Bottega Veneta, which is improving slowly after a rough patch - notched up strong sales growth in 2017. They include Yves Saint Laurent and Balenciaga, with the latter outperforming even Gucci in the fourth quarter.

Kering posted a 56.3 percent rise in adjusted operating income to 2.95 billion euros for 2017 as a whole, also beating forecasts, while full year revenues rose 27.2 percent on a comparable basis to 15.48 billion euros.

Kering shares lead European luxury rivals: tmsnrt.rs/2Bsjg3o

($1 = 0.8119 euros)

Additional reporting by Thyagaraju Adinarayan and Sudip Kar-Gupta; Editing by Keith Weir

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