KER Kering

By Matthew Dalton 

PARIS -- Gucci's sales and operating profit fell sharply in the first half, hit hard by lockdowns imposed world-wide to fight the coronavirus pandemic.

The Italian fashion house appeared to lose market share against two of its main rivals, Louis Vuitton and Dior, the French luxury brands owned by LVMH Moët Hennessy Louis Vuitton. Gucci's revenue fell 34% to EUR3.1 billion ($3.6 billion) in the half, its parent company, the Paris-based Kering SA, reported Tuesday. Sales at LVMH's fashion and leather goods division -- the bulk of which is Louis Vuitton and Dior -- were down just 23% in the half.

Gucci's operating profit slid 51% to EUR929 million.

Gucci has been struggling over the past year with slowing momentum, after three years of breakneck growth under its creative director Alessandro Michele. Mr. Michele's more recent fashion shows have displayed a less eclectic aesthetic than the one that propelled the brand in years past, when he mixed professional-sports logos with Renaissance-era silhouettes and sent models down the runway carrying replicas of their own heads.

The Italian fashion house, however, was better able to control costs in the first half than its French rivals, as lockdowns imposed during the pandemic forced boutiques around the world to shut for months at a time. That is partly because, unlike LVMH, Gucci relies heavily on third-party production from a network of small manufacturers clustered around Gucci's headquarters in the Florence region.

The structure makes it easier for Gucci to cut costs by canceling orders to these suppliers. Louis Vuitton and Dior own most of the factories that produce their goods.

"The fact that we are less internalized in production does help," said Jean-Marc Duplaix, Kering's chief financial officer. "Sometimes it can be a weakness and sometimes it's a strength."

Gucci, however, has been moving to take control of more of its production by buying up suppliers and building new factories. The goal is to be able to bring new products to market faster and ensure that it has enough production to meet surging demand for leather goods and other luxury products -- assuming demand does recover after the pandemic. Mr. Duplaix said the economic crisis hasn't prompted Kering to reconsider that strategy.

Overall sales at Kering, which also owns Saint Laurent, Balenciaga and Bottega Veneta, fell 30% to EUR5.4 billion, while net income was EUR273 million. Recurring net profit fell 53%, far less than at LVMH.

The quarter displayed another strong performance from Bottega Veneta, which until recently was Kering's worst-performing brand. The brand, known for its handbags made with the intrecciato weaving technique, replaced its longtime creative director in 2018 with the young British designer Daniel Lee.

First-half sales at Bottega Veneta were down 8.4%.

Write to Matthew Dalton at Matthew.Dalton@wsj.com

(END) Dow Jones Newswires

July 28, 2020 15:48 ET (19:48 GMT)

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