By Geoffrey Smith
Investing.com -- The troubles at Gucci-owner Kering (OTC:PPRUY) continue.
The luxury fashion group turned in another disappointing quarter in the three months through December, as the closure of many of its boutiques due to lockdown measures in Europe and North America continued to depress sales.
Revenue at Gucci, which typically accounts for two-thirds of group revenue, was a particular disappointment, falling 10.3% from a year earlier in the fourth quarter. The group’s chief financial officer Jean-Marc Duplaix told a conference call that lockdowns in Europe had meant that the trend had continued at the start of this year.
It wasn’t supposed to be this way. Kering had set its sights on narrowing the valuation discount between itself and arch-rival LVMH (PA:LVMH) after starting to unwind the mistimed acquisition of sports gear maker Puma, which it bought at the peak of the previous cycle in 2007. But in the two years since that spin-off, Kering’s shares have risen only 33%, while LVMH’s have more than doubled, as Bernard Arnault’s empire has gone from strength to strength.
It’s not just LVMH that has left it in the dust. Kering, with over 13 billion euros in revenue, now has a market value less than Hermes, which has less than 7 billion.
Kering (PA:PRTP) stock fell more than 7% in early trading in Paris before trimming losses to be down 6.9% by late morning.
Gucci has had a good run, to be sure. It more than doubled revenue in the four years before the pandemic, and its popularity with Chinese buyers appears to have offset its declining appeal in Europe, where it has suffered from perceptions of being too flashy.
But the latest quarter also showed revenue at Yves St Laurent and Bottega Veneta also growing below expectations, suggesting that the company has a broader problem. Online sales, for example, still only accounted or 13% of the total, despite a 67% increase last year. That suggests that the company has done less well than Hermes and others in reducing dependence on its boutiques and travel hub sales.
Chairman Francois-Henri Pinault is having none of it, however. In his statement accompanying the results, he said that “I am convinced that our strategy and business model are perfectly in sync with the current and future trends of the Luxury universe.”
For those who believe that the first step to solving a problem is acknowledging that you have one, that statement may jar more than a little.