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Kering Sees Steep Drop in Profit for First Half as Pandemic Causes ‘Toughest’ Period in Its History

PARIS — Kering said net profit fell 63.4 percent in the first six months of the year after the coronavirus pandemic forced it to close stores and factories worldwide and brought tourism to a halt — and the French luxury group does not expect its lost revenues to be offset in the second half.

Group revenues in the three months to June 30 fell 43.5 percent to 2.17 billion euros, representing a decline of 43.7 percent in comparable terms. This came on the heels of a 15.4 percent drop in the first quarter.

In percentage terms, the decline was greater than the one recorded by sector leader LVMH Moët Hennessy Louis Vuitton, which on Monday reported a 38 percent drop in second-quarter sales, but was below a consensus of analyst estimates, which called for a 48 percent fall.

Kering flagged an “encouraging” recovery as stores reopened, particularly in the Asia-Pacific region, and saw a 72.4 percent jump in online sales in the second quarter. But organic sales at its cash cow brand Gucci fell 44.7 percent during the period, compared with a 23.2 percent drop in the prior three months.

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Luxury stocks took a hit on Tuesday on the back of the LVMH results — despite the fact that it flagged a strong rebound in China — and Moncler posting a first-half loss for the first time in its history.

“It is fair to say that the first half of 2020 has been the toughest period we have faced,” François-Henri Pinault, chairman and chief executive officer of Kering, said in a statement issued after the market close.

“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,” he added.

Kering, whose brands also include Saint Laurent, Bottega Veneta and Balenciaga, posted net income of 569.3 million euros in the first half. Recurring operating profit was down 57.7 percent to 952.4 million euros, yielding an operating margin of 17.7 percent, down from 29.5 percent in the same period last year.

“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. However, the loss in revenue experienced in the first six months of the year should not be offset in the second half,” Kering predicted.

It declined to forecast its recurring operating margin for 2020 as a whole, but said the cost-cutting measures implemented in the first half should benefit results during the second part of the year.

Gucci saw wholesale revenues shrink as the market struggled and it continued to streamline its distribution. “As stores reopened, the house regained a favorable momentum with local customers in its main markets. Online sales performed particularly well in the first half, up 51.8 percent,” Kering said.

Saint Laurent posted a 48.4 percent drop in like-for-like sales, following a decline of 13.8 percent in the first quarter, reflecting its exposure to Western Europe and North America.

After bucking the general trend last quarter, Bottega Veneta also turned negative, with organic sales falling 24.4 percent, though the drop was contained by positive momentum in the stores that remained open and a rebound in mainland China and South Korea.

Other houses, a segment that includes Balenciaga and Alexander McQueen, saw sales decrease by 44 percent. Balenciaga maintained a double-digit operating margin during the first half, but watch manufacturers were heavily impacted by the sharp contraction in their market, Kering reported.

This story was reported by WWD and originally appeared on WWD.com.

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