Kering's Gucci shines while Bottega Veneta's slide worsens

Kering's flagship fashion brand Gucci on Thursday posted forecast-beating second-quarter organic sales growth of 7.4 percent, driven by solid demand for the brand's new looks designed by Alessandro Michele, particularly in Western Europe.

Gucci, emerging from years of decline under new creative and management teams, beat organic sales growth forecasts of 2-3 percent and enjoyed an acceleration from the first quarter's 3.1 percent.

The performance helped make up for a 9.8 percent decline in like-for-like second-quarter sales at sister brand Bottega Veneta, Kering's second biggest fashion brand after Gucci.

Bottega Veneta's revenue drop was worse than in the first quarter, when organic sales fell 8.3 percent.

Kering Finance Director Jean-Marc Duplaix said around 70 percent of Bottega Veneta's customer base came from Asia, including Japan, and the brand had suffered from lower Asian tourist traffic to Europe.

Duplaix also explained that Bottega Veneta was hit by new fashion trends, which favored small bags with shoulder straps, while the brand was better known for big bags and its intrecciato, or weaved leather.

"Our offer had to adapt itself to changing consumer attitudes," Duplaix said about Bottega Veneta in a conference call with journalists.

Bottega Veneta generated nearly 1.3 billion in annual sales last year while Gucci sales were just under 4 billion euros.

Kering said it expected Bottega's operating margins to remain under pressure and the drop in the second half would be of the same order as in the first half, or around 320-350 basis points.

The group acknowledged the brand had a problem regarding the lack of perceived "newness" of its products in stores and it was working to mend that perception.
"We need to change our communication and display in the stores," said Kering Managing Director Jean-Francois Palus.

GUCCI TURNAROUND

In June, Gucci Chief Executive Marco Bizzarri had said that he expected the brand's sales to have improved in the second quarter and to grow twice as fast as the wider luxury market in the medium term.

Kering said European consumers were the first to embrace Gucci's new clothes and stores designs which were rolled out globally.

In June, Gucci stoked controversy by holding a fashion show in the cloisters of Westminster Abbey in London, the final resting place of Charles Dickens and Rudyard Kipling and the setting of every coronation since 1066.

Churchmen criticized the event in the media, arguing they believed it was wrong to use traditional sacred places for commercial purposes. But Westminster Abbey answered back it regularly hosted private venues and saw nothing wrong with letting in a fashion brand.

"The Gucci turnaround is working," Exane BNP Paribas analyst Luca Solca said about the brand's better-than-expected results.

Kering controls sports brand Puma as well as several fashion brands including Yves Saint Laurent and Stella McCartney.