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Kering Says Gucci Absorbed Biggest Blow in First Six Months of 2020

Brands owned by luxury conglomerate Kering suffered in the first six months of the year as the coronavirus crisis blew up sales and profits—and the company doesn’t expect business to improve much in the remainder of the year.

In a Nutshell: Store closings and a halt to tourism hurt sales at Kering’s brands, the company said. As stores have reopened, Kering said it is seeing an “encouraging recovery” in the Asia-Pacific region, led by Mainland China. Acceleration of online sales was seen in the first half, up 47.2 percent, and up 72.4 percent in the second quarter.

“We entered 2020 in a particularly solid position—our global scale, the desirability and agility of our brands, and our values of sustainability and responsibility, all are key assets in weathering current conditions. Our strategic vision is only reinforced by the crisis and, with the benefit of our sound financials, innovativeness and digital expertise, we are pursuing its implementation with consistency and determination,” François-Henri Pinault, Kering’s chairman and CEO, said.

The company said it will continue to focus on its long-term strategy of achieving same-store revenue growth, even while the retail backdrop is “characterized by uncertainties and a difficult macroeconomic context,” neither of which threaten the structural growth drivers for the group or the luxury sector as a whole.

On Monday, LVMH also posted a decline in first-half profits, citing a six-month span marked by store closures and dampened consumer demand. U.S. retailers are set to report second-quarter results next month.

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Net Sales: Total revenues for the half fell 29.6 percent to 5.38 billion euros ($6.31 billion) from 2.25 billion euros ($2.64 billion) in the same year-ago period. Revenue was down 43.5 percent to 2.18 billion euros ($2.56 billion) in the second quarter, the company said.

Kering said its gross margin for the first half was 3.90 billion euros ($4.57 billion), representing a decline of 30.9 percent from last year.

By brand, revenues at Gucci fell the most at a 33.5 percent drop to 3.07 billion euros ($3.60 billion), while comparable sales at company-owned stores fell 33.4 percent. Wholesale revenue fell 36.1 percent on a comparable basis, hurt by difficulties in key accounts, particularly in the U.S. and the brand’s ongoing initiatives to enhance exclusivity of its distribution, Kering said.

At Yves Saint Laurent, revenues fell 30 percent to 681.1 million euros ($798.5 million), while comparable same-store sales were down 33.3 percent and wholesale revenue saw declines of 23.7 percent. Second-quarter results saw revenue for the brand decrease 48.4 percent, reflecting the house’s exposure to Western Europe and North America.

Bottega Veneta’s revenue was down 8.4 percent to 503.1 million euros ($589.8 million), while same-store sales was down 18.6 percent. Online sales more than doubled, while wholesale revenue grew 31.9 percent, helped by new collections and limites points of distribution.

Kering’s other houses combined saw a 25 percent decline to 919.1 million euros ($1.08 billion), including Balenciaga, Alexander McQueen, and Qeelin, a fine jewelry brand. Kering’s corporate and other group, which includes Kering Eyewear, saw revenues fall 26.0 percent to 202.8 million euros ($237.7 million).

Earnings: For the first half, Kering’s profits fell 63.4 percent to 569.3 million euros ($667.4 million) from 1.56 billion euros ($1.83 billion) a year ago.

“Like all other luxury sector players, during the first half of the year the Group was deeply impacted by the effects of the pandemic, both in terms of its customers and its overall business operations. The lack of visibility about how the worldwide personal luxury goods market will evolve in the next few months makes it impossible to forecast the Group’s second-half sales with any sufficient degree of reliability,” Kering said Tuesday.

“However, the loss in revenue experienced in the first six months of the year should not be offset in the second half. Against this backdrop, Kering has put in place all the necessary measures to adapt its cost base and contain its working capital requirement, without cutting back on expenditure and investments required to protect its Houses’ market positions and safeguard their potential to grow and bounce back in the short and medium term,” it added.

CEO’s Take: “It is fair to say that the first half of 2020 has been the toughest period we have faced—we stand in solidarity with all who are suffering through this situation and acknowledge the remarkable contribution of all our associates. Our results today underscore the extent of the disruption exacted by the pandemic on our operations. Even more importantly, the resilience of our performances validates our model and supports our confidence that we will come out of this crisis even stronger,” Pinault said.