Feb 10, 2017
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Gucci, YSL shine at Kering as luxury revives, but Bottega still struggles

Feb 10, 2017

French luxury group Kering delivered a forecast-beating rise in 2016 profits and sales on Friday, driven by the successful revival of its biggest brand, Gucci, and strong sales at Yves Saint Laurent.

The group also vowed to further boost its operating performance and cash flow generation this year despite a world business environment it said remained uncertain.

Gucci - Fall-Winter2016 - Womenswear - Milan - © PixelFormula

The strong showing provided further evidence of a recovery in the luxury goods sector, after rival LVMH posted record revenue and profits for 2016 and Hermes struck an upbeat note for 2017.Chairman and CEO Francois-Henri Pinault was similarly optimistic, citing positive signals in Hong Kong and improving demand in China and the United States.

Recurring operating income for the year rose 14.5% to €1.886 billion ($2.01 billion) while group revenue rose 8.1% on a comparable basis to €12.385 billion .

This compared with €1.83 billion for profit and €12.28 billion for sales according to a Reuters consensus conducted with Inquiry Financial.

By 1324 GMT, Kering shares were 2.8%, after touching a 16.5 year high of 235 euros, leading gainers on the CAC-40 index of French blue chips.

Gucci, under the leadership of designer Alessandro Michele and Chief Executive Marco Bizzarri since early 2015, has revamped its stores and adopted a vintage 'geek chic' look that has proved popular with customers and translated into higher sales.

"We recreated the Gucci dream. In 2017 we will make it a booster of sustainable growth," deputy chief executive Jean-Francois Palus told a news conference.

"Gucci is cashing in on a brilliant self-help programme, which has brought back the brand on the map," said Exane BNP Paribas analyst Luca Solca.

Fourth quarter comparable sales at Gucci, which makes over 60% of Kering's profit, rose 21.4%, beating analysts forecasts for 13% growth and accelerating from the third quarter. The performance was achieved despite Gucci's decision to terminate markdowns in its stores, finance chief Jean-Marc Duplaix told a conference call. Some 85% of Gucci sales in the quarter were from its new Michele's collection.

In directly-operated stores sales climbed 28.2% in the quarter, with all regions delivering good showings.

Gucci and Yves Saint Laurent now generate 50% of their revenue from the tech-savy generations born after 1980.

Yves Saint Laurent, which accounts for over 10% of Kering's luxury sales, continued to progress with new designer Anthony Vaccarello at the helm since April. Yves Saint Laurent sales rose 20.5% during the quarter while the recurring operating margin of the division jumped over the 20% mark for the full year.

Bottega Veneta remained a weak spot with sales down 8.6% in the quarter. The brand has been hurt by a slowdown in Chinese tourist spending in Japan and Europe. There were, however, signs of an improvement in Chinese tourist spending in western Europe in the last quarter of the year, the group said.

The group posited that 2017 would see a stabilisation of falling sales at underperforming Bottega Veneta, whose exclusive positioning will be strengthened.

Kering, also the owner of the Stella McCartney and Puma brands, was upbeat despite what it described as an uncertain business environment.

The German sportswear firm Puma reeprted strong sales growth and gave a confident forecast for 2017 on Thursday.

Pinault said the priority was to improve profitability at Puma, when asked if he had any plans to sell the brand.

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