Despite Exceeding Sales Expectations, Leadership Warns Investments in Key Brands Will Continue to Affect Profits in 2024
Kering exceeded expectations with its fourth-quarter sales, showcasing growth in the Asia-Pacific and Japan regions. However, the Gucci owner cautioned investors about the ongoing impact of investments aimed at revitalizing its key brands throughout 2024.
In the last three months of the year, the French luxury group’s revenues, at reported exchange rates, declined by 6 percent to 4.97 billion euros, reflecting a 4 percent decrease in comparable terms. Despite this decline, Kering highlighted positive trends in Western Europe and North America.
The results surpassed analysts’ projections, who had anticipated an 8 percent decrease to 4.88 billion euros. These achievements come amidst a broader slowdown in the luxury sector and geopolitical uncertainties.
Kering anticipates a decline in full-year recurring operating income for 2024, especially in the first half, amid a sluggish luxury spending environment.
François-Henri Pinault, Kering’s chairman and CEO, emphasized the group’s commitment to rejuvenating Gucci and expanding its nascent beauty division, bolstered by the recent acquisition of Creed. Pinault said in a statement, “In a market environment that remains uncertain in early 2024, our continuing investments in our houses will put pressure on our results in the short term,” expressing confidence in achieving long-term ambitions.
For the full year, recurring net profit dropped by 18 percent to 3.06 billion euros, while recurring operating profit decreased by 15 percent to 4.75 billion euros. Gucci contributed 68 percent of the group’s operating profit in 2023.
The recurring operating margin declined to 24.3 percent in 2023 from 27.5 percent the prior year.
Most of Kering’s luxury divisions experienced organic sales declines in the fourth quarter. Saint Laurent declined by 5 percent, Bottega Veneta by 4 percent, and the “other houses” group, which includes Balenciaga and Alexander McQueen, by 5 percent.
However, the Kering eyewear and corporate division saw a 7 percent increase in comparable sales, attributed to Creed’s profitability offsetting initial costs at Kering Beauté.
In comparison, LVMH Moët Hennessy Louis Vuitton reported a 9 percent rise in organic sales in its key fashion and leather goods division for the same period, resulting in a significant increase in its market capitalization.
Hermès International’s fourth-quarter results are expected to be announced on Friday.