A mixed picture for the luxury sector following the results. Kering soars in Paris, but Hermès slips

(Il Sole24 Ore Radiocor) - A mixed day for the luxury sector following the results from the major Parisian fashion houses. Kering soars on the stock market following its second-quarter results, which showed a rise in turnover after several difficult years, whilst the decline in Gucci’s revenue was less than expected, raising hopes for a recovery in the group’s flagship brand. By contrast, the market has given a lukewarm reception to the results from Hermès.

More specifically, Kering – which also owns brands such as Yves Saint Laurent and Balenciaga – is undergoing a major transformation and recorded a slight increase in sales in the second quarter, seen as a sign of the effectiveness of the new strategy announced by the new CEO, Luca De Meo. Between April and June, turnover for the group controlled by the Pinault family rose by 1% to €3.65 billion, following the decline recorded in the first quarter. For the half-year as a whole, however, the accounts remain in the red: between the start of January and the end of June, net profit fell by over 60 per cent to €189 million, due to one-off items. Sales of the flagship Gucci brand (which accounts for around half of profits) continued to fall in the second quarter, though the decline was less pronounced than in the first three months of the year: like-for-like sales fell by 2 per cent, whilst analysts had expected a decline of around 3.3 per cent. The brand recorded a improvement across all geographical regions compared with the previous three months, led by North America.

Capital Markets analysts highlight in particular a “better-than-expected” improvement in margins, a trend which, in their view, is set to continue in the second half of the year, with management “appearing confident in its ability to reduce projected operating costs” by the end of the financial year. Overall, the experts speak of an “initial stabilisation” of the group “under the new management”. Almost a year after taking the helm at Kering, Chief Executive Luca de Meo has launched a series of measures to revitalise a group that was struggling to operate in a sharply slowing luxury market. Among the measures announced in mid-April are the optimisation of the retail network – involving the closure of 84 shops –, a reduction in stock levels, a cut in the number of suppliers and an internal reorganisation. Furthermore, the sale of the beauty division has helped to reduce debt. For their part, analysts at Jefferies point out that the operating profit was “6 per cent higher than forecast thanks to cost savings”.

It was, however, a disappointing day for the Hermes Group in Paris, following the publication of results that were broadly in line with investors’ expectations, but with no signs of a recovery in business in China, a strategic market for the company.

Although sales rose by 4.8 per cent year-on-year in the second quarter, the group’s chairman and chief executive, Axel Dumas, stated that he did not yet see “a structural recovery” in the Chinese market, which has been slowing for several months after having long driven sales growth across the entire luxury sector. The Parisian fashion house, maker of the famous Birkin bag, posted turnover of €4.09 billion ($4.66 billion) for the quarter ending in June, representing organic growth of 6.7% compared with the same period last year. In the first quarter, the group had recorded a 5.6 per cent increase in revenue. Hermès explained that this performance was driven by growth across all geographical regions, with the exception of the Middle East, which was affected by ongoing conflicts. However, revenue in the Asia-Pacific region – excluding Japan but including China – rose by 2.5 per cent year-on-year, only marginally higher than the growth rate recorded in the early months of the year.