According to recent reports, French luxury group Kering’s renowned fashion brand Gucci experienced a modest growth in sales during the third quarter, falling short of analyst expectations. The pace of recovery from the COVID-19 pandemic has considerably slowed down, particularly in Asia, following a strong second quarter. This slowdown is concerning, as Asia, particularly China, has been a significant growth driver for the luxury sector.

Gucci’s sales only grew by 3.8% in the third quarter, a disappointing figure compared to the impressive 86% surge it experienced in the previous quarter. As Gucci constitutes more than half of Kering’s annual sales, this growth slowdown has become a focal point for investors. In comparison, luxury conglomerate LVMH’s fashion and leather goods division reported a 24% increase in third-quarter sales.

The United States and western Europe, on the other hand, showed strong performances for Kering, helping to offset the decline in Asian sales. However, a resurgence of COVID-19 cases in the Asia-Pacific region had a negative impact on revenue. Specifically, Gucci sales were down 3%.

Despite the underperformance of Gucci, Kering’s overall sales rose by 12.2% on a comparable basis, slightly exceeding analyst consensus forecasts. This positive result was mainly driven by Kering’s smaller fashion labels, Yves Saint Laurent and Bottega Veneta, which saw robust sales growth in North America and Europe. However, similar to Gucci, these labels experienced more muted performances in the Asia-Pacific region.

Kering’s finance chief, Jean-Marc Duplaix, expressed optimism for Gucci’s growth in the fourth quarter following the successful launch of its new Aria collection. The collection, which offers a wider range of products compared to previous collections, has been well-received globally. Kering plans to support the brand through investments in events, communication, stores, and recruitment. However, these efforts may impact the brand’s margin growth in the latter half of the year.

Despite the challenges faced by the luxury sector, Kering is remaining positive about the future and the growth potential of Gucci. The company’s investments and the launch of the Aria collection are expected to drive a strong end to the year for the brand.

It is worth noting that luxury investors are closely monitoring the situation in China, as the country undergoes economic changes and government measures aimed at reducing the wealth gap. The outcome of these changes may impact the demand for high-end goods in the region.

In conclusion, while Kering’s fashion brand Gucci faced a slowdown in sales growth, particularly in Asia, during the third quarter, the overall sales for Kering exceeded expectations. The underperformance of Gucci has raised concerns among investors, but Kering remains optimistic about its growth in the fourth quarter. The performance of Kering’s smaller fashion labels in different regions also highlights the varying impacts of the pandemic on the luxury sector. As Asia, especially China, undergoes economic changes, the future demand for luxury goods in the region remains uncertain.

Sources:
Bloomberg: Kering Sales Miss Estimates on Gucci Pace, Luxury Recovery Pullback
Reuters: Asian demand underwhelms Gucci, casts shadow over Kering