Kering Group, the parent company of Gucci and Yves Saint Laurent, release their financial report On July 27 for the second quarter and first half of the year, ending June 30.
Following the report's release, Kering Group's Euro stocks remained almost 3% higher at close, while American Depository Receipts (ADR) quickly narrowed from nearly a 3% increase to a flat position.
For the first half of the year, the group's total revenue was €10.14 billion ($11.74 billion), roughly in line with analysts' anticipated €10.19 billion ($11.80 billion). Comparable store sales during the same period increased by 2%, a bit under the projected growth of 2.86%.
Operating profits for the first half of the year were €2.74 billion ($3.17 billion), slightly down from the same period last year's €2.82 billion ($3.27 billion), and marginally below the market expectation of €2.76 billion ($3.20 billion). The operating profit margin dropped from 28.4% to 27%, and net profit stood at €1.79 billion ($2.07 billion), falling short of the same period last year's €1.99 billion ($2.30 billion).
In the second quarter, the group's revenue increased 2% year on year to €5.06 billion ($5.86 billion), a slight increase from the first quarter's €4.97 billion ($5.75 billion), but less than the analysts' expected €5.15 billion ($5.96 billion). The season's comparable store sales also grew by 3%, falling short of the anticipated 4.46% growth.
The Group's direct retail network, including e-commerce, saw a 4% rise in revenue for the quarter, with strong performance in the Asia-Pacific region and Japan, steady growth in Western Europe, but a decrease in sales in the North American market, mirroring trends of luxury giant LVMH.
Gucci, a major contributor to the group's revenue and accounting for two-thirds of the overall profits, reported second-quarter revenues of €2.51 billion ($2.90 billion), which was lower than the anticipated €2.6 billion ($3.01 billion). This marked a 1% year-on-year growth, significantly weaker than the expected 4.23% growth.
This led Gucci to reach half-year revenues of €5.1 billion ($5.91 billion), with a comparable sales growth of 1%, and a 1% increase in direct retail network sales. However, compared to the first half of last year, wholesale revenue decreased by 3%. Operating profit stood at €1.8 billion ($2.08 billion), with an operating profit margin of 35.3%.
Furthermore, due to the group's increased investment to support weaker brands, Gucci's operating profits for the first half of the year fell by 4%, and the operating profit of other brands, including Balenciaga, which caused an advertising controversy last year, plummeted by 34%.
Analysts have pointed out that Kering Group's second-quarter sales fell short of market expectations and continue to lag behind competitors while seeking to turn around Gucci's business.
In contrast, other luxury giants achieved double-digit growth in their main businesses in the second quarter, such as the larger scale LVMH, Europe's highest-valued company, whose fashion and leather goods sector (headquarters of Dior and Louis Vuitton) saw a sales increase of 21%.
Notably, Kering Group also announced on Thursday that it would acquire a 30% stake in the Italian fashion brand Valentino from Qatar investment fund Mayhoola for €1.7 billion ($1.97 billion) in cash, becoming a significant shareholder and gaining a seat on the board.
The announcement indicated that Kering Group and the Mayhoola fund would establish a broader strategic partnership. Kering Group has the right to acquire 100% of Valentino's capital before 2028, which could potentially lead to Mayhoola becoming a shareholder in Kering Group.
Valentino has 211 directly operated stores in more than 25 countries worldwide, with 2022 revenue reaching €1.4 billion ($1.62 billion) and recurring EBITDA profit of €350 million ($405 million). The transaction is expected to be completed by the end of 2023, pending approval by relevant competition authorities.
Last Tuesday (July 18), Kering Group announced a major leadership shakeup for the Gucci brand in a bid to rejuvenate its appeal, causing its Euro stocks to surge nearly 7%, the largest increase in eight months.
The current CEO, who has been in charge of Gucci since 2015, will resign on September 23 and be succeeded by Kering Group CEO's trusted deputy, Palus. Gucci's former creative director, Alessandro Michele, resigned last November, and the new director, Sabato de Sarno, plans to launch his first series in Milan this September.
Analysts, including those from Citigroup, are generally optimistic about Kering Group's changes in Gucci's management, believing it will improve the decision-making process and demonstrate Gucci's commitment to transformation. This year, Kering Group's stock price has increased by approximately 11%, trailing behind competitors LVMH and Hermès, which both saw over a 25% increase. Over the same period, the S&P 500 Global Luxury Index increased by approximately 22%.
