By Tassilo Hummel and Alessandro Parodi
PARIS, Oct 22 (Reuters) – Gucci sales fell in the third quarter as shoppers stayed away from its stores, its owner Kering said on Thursday, blowing hopes of a rapid return to growth for Luca de Meo, who took over as CEO last year.
The former automotive industry veteran is trying to turn Kering around with a five-year plan to double its profit margin, but the Iran war, weak demand in China and slowing momentum in the United States are frustrating that ambition.
Lower-than-expected quarterly sales at LVMH and Hermes have added to investor concerns over Kering and asked on media call if returning to overall growth was still the aim this year, its finance chief Armelle Poulou declined to comment, pointing to the publication of full-year results.
Kering’s American Depositary Receipts (ADRs) were down 11% following its trading update, which showed sales at Gucci, which accounts for roughly half of group profit, were down 6% when adjusted for currency moves to €1.29 billion ($1.44 billion) in the quarter, while group revenue fell 1%.
Footfall, in particular in China, is the main problem at Gucci, where sales have been falling for more than three years, Kering said. Gucci sales also slid slightly in North America.
Kering plans to ramp up spending on marketing and client experience to attract more shoppers, Poulou said.
“We keep on carrying out our plan with the utmost discipline,” Poulou said, adding Kering has so far reduced its retail network by 105 stores and was targeting 125 closures by the end of the year.
PRESSURE ON DESIGNER DEMNA
Kering last year tapped De Meo to overhaul the group. Its shares had an early price bounce under the former Renault chief before cooling off, with the stock down 8% from a year earlier amid a wider sector downturn.
De Meo aims to double Kering’s profit margin from 11.1% in 2025 by the end of the decade through cost cuts, more store closures and a push to streamline supply chains.
But analysts have said mere efficiency measures will not be enough to turn around a business whose brands have lost appeal.
Both Anthony Vaccarello, the creative director of its second-biggest brand Saint Laurent, and Alexander McQueen designer Sean McGirr left their posts this month.
Fashion industry media have also speculated about the future of Balenciaga’s creative director Pierpaolo Piccioli.
The recent changes are likely to pile even more pressure on Demna, who is nearing his first full year at the helm of Gucci, which he sought to reignite with a bold bet on daring, sexy styles reminiscent of the brand’s successes under Tom Ford.
Demna also took some unusual manufacturing steps, moving the production of his first sneaker models to China.
($1 = 0.8934 euros)
(Reporting by Alessandro Parodi and Tassilo Hummel; additional reporting by Sruthi Shankar; editing by Kirsten Donovan and Alexander Smith)
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