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UPDATE 2-Hip Gucci helps luxury sales surge at France's Kering
October 24, 2017 / 4:30 PM / 2 months ago

UPDATE 2-Hip Gucci helps luxury sales surge at France's Kering

* Kering like-for-like sales up 28.4 pct in Q3

* Beats forecasts as Gucci grows more than expected

* Negative currency effects still lurk

* Says not considering Puma options in short-term (Updates with comments from CFO following analyst call)

By Sarah White and Pascale Denis

PARIS, Oct 24 (Reuters) - Runaway demand for Gucci’s accessories and colourful designs helped French parent Kering beat sales forecasts in the third quarter, as the luxury industry’s biggest companies tap into revived appetite from Chinese shoppers.

Kering, which also houses labels such as Yves Saint Laurent, Balenciaga and Stella McCartney, is riding an industry turnaround along with rivals such as LVMH, even as foreign exchange conditions become tougher.

The Paris-based group has especially benefited from a stand-out performance at its star label Gucci, as enthusiasm for its sequin-filled, flamboyant reinvention by designer Alessandro Michele over the past two years shows little sign of fading.

Sales were up 49.4 percent in the third quarter at Gucci on a like-for-like basis - excluding currency swings - marking an acceleration from the 39.3 percent growth notched up three months earlier.

The biggest contributor to Kering’s profits and revenues, Gucci helped sales at a group level trump analyst forecasts between July and September, with a 28.4 percent rise year-on-year on a comparable basis.

“Simply put, this is still the Gucci moment,” RBC Capital Markets analyst Rogerio Fujimori said in a note.

Kering’s Finance Director Jean-Marc Duplaix said he was confident the Italian fashion label - a hit with younger “millennial” shoppers - would continue to outperform the market, although the comparison base for Gucci’s earnings will become less favourable in 2018.

Other brands at Kering also did well, including Balenciaga, which Duplaix said was growing faster than most in the Kering stable. But Bottega Veneta still lagged other labels after several quarters of struggling sales.

PUMA IN THE SPOTLIGHT

The luxury industry is picking up after an economic slowdown in China and militant attacks in Europe which hurt tourist spending.

Firms are now grappling with a stronger euro, which risks putting off some tourists shopping in Europe and hurts earnings converted into the currency.

Kering took a 128 million euro ($151 million) foreign exchange hit in the third quarter, and said the currency outlook would not improve over the next three months.

The Chinese revival is already a year-old, meanwhile, making earnings comparisons tougher and spelling headwinds further down the lines.

Shares in Kering have risen nearly 70 percent this year as it emerged as one of the industry’s better performers along with LVMH or Italy’s Moncler, which is known for its high-end down jackets.

Kering, run by billionaire Chairman Francois-Henri Pinault, is under scrutiny over whether it will sell off or whittle down its stake in German sportswear company Puma after a long turnaround that is finally paying off.

Kering’s Duplaix reiterated on Tuesday that Puma was not core to the group’s luxury-focused business but said nothing was on the table at present.

“Puma is on a very nice trajectory, and we will have the occasion to consider and to contemplate some options, but later, and probably not short-term,” Duplaix told a conference call.

Kering’s revenue reached 3.9 billion euros in the third quarter, up 23.3 percent on a non-organic basis. ($1 = 0.8495 euros) (Reporting by Sarah White and Pascale Denis; Editing by Dominique Vidalon)

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