PPR’s less than impressive first-quarter sales have possibly reinforced fears that the luxury goods sector has run out of steam and reached a turning point.
How so? After the French luxury group, who changed their name recently from PPR to Kering (due to be formalised this June) released their first-quarter results, their shares dropped by 7 per cent. But it wasn’t only just PPR’s shares who dropped, with Reuters reporting that LVMH and Richemont’s shares also dropped by 1 per cent.
“The luxury goods sector will continue to outperform other markets but the pace of growth is likely to come down because it was not sustainable the way it was growing in the past 2-3 years,” said Scilla Huang Sun, who runs the JB Luxury Brands Fund with €320 million euros under management.
PPR’s sales for the first quarter rose a moderate 1 per cent to €2.36 billion, with that figure coming in below analysts’ expectations of €2.46 billion, as sales growth at the company’s luxury division cooled and revenue in the sport and lifestyle fell.
PPR last week underlined the “very high base of comparison established last year” for its luxury sales.
PPR Chief Financial Officer Jean-Marc Duplaix also said business in the division’s main brand Gucci had notably been affected by a downturn in demand in Europe from local shoppers and tourists alike.
In China, the main driver for the luxury industry has led to more cautious buying by the country’s consumers both at home and as tourists abroad. At the same time, the tough fiscal and economic climate in Europe has weighed on local shoppers.
PPR’s luxury stars – Gucci as well as Bottega Veneta and Yves Saint Laurent, saw revenue rise 4.5 per cent to €1.52 billion in the first three months of the year.
Duplaix said in China, where Gucci’s underlying growth reached “high single digits” (an increase of 10 per cent in the last quarter) economic growth “had yet to see signs of accelerating”, which was likely to affect its luxury brands.
The CFO added he is “cautious” about the company’s capacity to deliver a new year of strong growth in North America, after booming business last year.
François-Henri Pinault, Kering Chairman and Chief Executive Officer, commented: “Kering’s sales activities since the beginning of 2013 have been powered by our Luxury Division, which has continued to make headways in all regions of the world. In Fashion and Leather Goods, our robust performance above and beyond the very high base of comparison established last year confirms the tremendous appeal of our brands. In a jumpier environment, notably in Europe, sales of our Sport & Lifestyle Division contracted somewhat in the first months of the year. Following the appointment of its new CEO, Björn Gulden, Puma will step up the pace of implementation of its transformation plan. In this context, we remain firmly focused on controlling costs and preserving our gross margins. The unique strengths of each of our brands, combined with the energy and imagination of our teams, reinforce our confidence in the future and in our ability to further improve our performances in the full year.”
Has the luxury industry hit its full capacity? What are your thoughts?
By Cassandra Murnieks
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Yesterday we wrote that LVMH announced yet another management change with the news of Stéphane Linder becoming the CEO of Tag Heuer and now rival luxury group Richemont has appointed two new Chief Executives to two of its brands.
