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Kering Hurt by Bigger China Exposure Amid Lockdowns

Gucci owner Kering is offering two euro-denominated notes to boost the merger €6.53 billion ($6.89 billion) of non-financial corporate issuance so far this month.
Kering's biggest brand, Gucci, is continuing to suffer from repeated Covid-19 lockdowns. (Shutterstock)

Gucci continues to suffer from repeated Covid-19 lockdowns in China, where Kering SA’s biggest brand has a greater exposure than other luxury labels.

Sales at the Italian fashion brand rose 4 percent on a comparable basis during the second quarter, the fashion group said Wednesday. Analysts expected a 4.6 percent gain, according to a survey by Bloomberg. Strong performances in other key markets and by other labels helped the group record an uptick in interim sales and profit.

Gucci’s popularity has suffered among consumers since the pandemic struck. A great degree of uncertainty still remains when it comes to virus restrictions in China with Wuhan locking down one million residents amid a virus resurgence this week.

Kering said that “solid performances in retail around the world” and a “nascent rebound in tourism in Europe” more than offset the impact of China. Recurring operating income at Kering rose by more than a quarter to 2.82 billion euros ($2.85 billion) in the first half, compared with the 2.68 billion euros analysts expected.

Saint Laurent, led by Francesca Bellettini, one of the few female chief executives in the industry, had the strongest revenue growth rate during the quarter among Kering’s top brands, up 31 percent.

The company said it had an “ongoing brand elevation strategy” for Gucci which still accounts for the lion’s share of the group’s profit. Last month, Kering presented plans for Gucci to reach annual sales of 15 billion euros in the next five years.

Despite the restrictions in China, Kering will continue to invest in that country, Chief Financial Officer Jean-Marc Duplaix told reporters. Duplaix said up to 35 percent of the store network for Gucci in China was shut during April and May. That led to a revenue drop in China of up to 35 percent during the quarter, he said on a call with analysts.

Gucci is betting on a new management team for China after naming Laurent Cathala, a former Tiffany & Co. executive, to lead the fashion unit there in April. Cathala “is now fully on board,” Kering Managing Director Jean-Francois Palus said on the call.

Kering brands saw shopping trends in China improve starting in June but it’s difficult to predict future trends, Duplaix said.

Duplaix confirmed Gucci increased prices last month between “mid- to high-single digits” globally but said it was too early to say if more hikes would come in the second half of the year.

On Tuesday, LVMH posted sales and earnings that showed the appetite of luxury consumers is so far resilient to the rising inflation and worsening economic outlook.

Separately, Kering announced Jean Liu resigned from her board seat from today. She’d taken up that role two years ago.

Liu is the president of Didi Global Inc., which was fined $1.2 billion last week after a yearlong probe into the ride-hailing giant in China.

By Angelina Rascouet

Learn more:

Can Kering Shake Off Gucci’s Growth Hangover?

The Italian mega-brand’s uneven pandemic rebound has some investors worried after years of dizzying growth.

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