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Of All Kering’s Brands, Outbreak Slams Gucci the Hardest

Despite a good start to the first quarter, the global coronavirus pandemic that spread from China to Europe and North America has roiled all parts of Kering Group’s business.

In a Nutshell: Kering’s business during the quarter mirrored the spread of the global COVID-19 pandemic. While January showed good results, that changed in February when stores in the Asia-Pacific began closing to staunch the spread. The situation sharply deteriorated in March as stores in Europe and then the U.S. folded, if temporarily, in response to the growing crisis.

“The COVID-19 pandemic took a heavy toll on our operations in the first quarter. We took immediate action to ensure the safety and well-being of all the Kering people around the world, and of our customers…. After a very promising start to the year for all of our Houses, the rapid spread of COVID-19 affected our performance in our main markets. We are working hard on ensuring the continuity and readiness of all our businesses. Adapting our cost base and preserving our cash position are top priorities, implemented at all levels of the Group. Our solid financial structure and our agility serve us well in this difficult period,” François-Henri Pinault, chairman and CEO, said.

The company’s production facilities in the quarter shifted gears to produce protection gear for use by healthcare workers.

Net Sales: Revenue in the quarter ended March 31 fell 15.4 percent to 3.20 billion euros ($3.47 billion) from 3.79 billion euros ($4.11 billion), or down 16.9 percent on a comparable basis.  The company said comparable sales through its wholesale network were down 6.8 percent.

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Revenue from the directly operated stores of the firm’s fashion houses fell 19.5 percent on a comparable basis, although the company also saw a 21.1 percent increase in e-commerce for its luxury brands in the quarter. During March, stores in Mainland China began reopening.

Sales from its Gucci brand fell the most, down 22.4 percent to 1.80 billion euros ($1.95 billion).

“Sales from directly operated stores fell 23.8 percent against an extremely high first-quarter 2019 comparison basis. Gucci had an excellent start to the year, with double-digit growth in North America in the first two months of the year,” Kering said, adding that activity levels were hit hard from February onward due to the brand’s strong store base in Asia-Pacific and among Chinese tourists worldwide.

“Trends in Mainland China are gradually improving since stores began reopening in early March. Wholesale was down 20 percent, held back in particular by the closure of [Kering’s] central logistics hub in late March and an increasingly selective distribution,” the company added.

Kering will hold its annual shareholders’ meeting on June 16, behind closed doors.

CEO’s Take: “My confidence in Kering’s future lies in the strength and values of our Houses, which will all emerge from this period of uncertainty at the top of their game, as well as in our ability to blend long-term vision with near-term imperatives,” Pinault said.