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Kering Q1 Sales Fell 15.4% with Cash-Cow Gucci Feeling the Impact of the Pandemic

French luxury group Kering said sales took a larger-than-expected hit in the first quarter as the coronavirus outbreak curtailed travel and shuttered stores worldwide, strongly impacting revenues at its cash cow brand Gucci.

Group revenues in the three months to March 31 fell 15.4 percent to 3.20 billion euros, representing a decline of 16.4 percent  in comparable terms, though Kering noted “encouraging signs” in Mainland China in March as most of its stores there reopened.

In percentage terms, the decline was broadly in line with sector leader LVMH Moët Hennessy Louis Vuitton, which last week reported a 15 percent drop in first-quarter sales, but it was below the guidance Kering issued last month.

The group, which owns brands including Gucci, Saint Laurent and Boucheron, had warned that consolidated revenue for the first quarter would likely be down between 13 and 14 percent, or 15 percent in comparable terms, versus the same quarter last year.

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Kering expects second quarter revenues to be sharply impacted, and forecasts a decline in the recurring operating margin in the first half.

“The COVID-19 pandemic took a heavy toll on our operations in the first quarter,” François-Henri Pinault, chairman and CEO of Kering, said in a statement on Tuesday.

“We are working hard on ensuring the continuity and readiness of all our businesses. Adapting our cost base and preserving our cash position are top priorities, implemented at all levels of the group. Our solid financial structure and our agility serve us well in this difficult period,” he said.

“My confidence in Kering’s future lies in the strength and values of our houses, which will all emerge from this period of uncertainty at the top of their game, as well as in our ability to blend long-term vision with near-term imperatives,” Pinault concluded.

Organic sales at Gucci fell 23.2 percent during the period, compared with a rise of 10.5 percent in the fourth quarter of 2019 and an increase of 20 percent during the same period a year ago. The brand accounted for more than 60 percent of Kering’s revenues, and 82 percent of its operating profit, last year.

Saint Laurent posted a 13.8 percent drop in organic sales, while other houses, a division that includes Balenciaga and Alexander McQueen, saw sales decrease by a relatively more modest 5.4 percent.

Bottega Veneta recorded an increase in sales of 8.5 percent, confirming its strong momentum as more of creative director Daniel Lee’s new designs land in stores.

As part of its effort to rein in costs, Kering will propose cutting its planned dividend by 30 percent at its annual general meeting, which will now be held on June 16 behind closed doors.

As reported, Pinault has decided to cut the fixed portion of his salary by 25 percent from April until the end of the year. He and Jean-François Palus, group managing director, have also decided to waive the variable portions of their annual remuneration for 2020.

The luxury market is expected to contract by 25 to 30 percent in the first quarter, according to management consulting firm Bain & Co., which also modeled three scenarios for the whole of 2020 — with the intermediate scenario suggesting a contraction of between 22 percent and 25 percent.

Exane BNP Paribas said that in light of the International Monetary Fund’s forecast of a 3 percent contraction in the global economy, it now expects the luxury market to shrink by 20 percent in 2020, versus a forecast of 4 percent growth at the beginning of the year.

However, it expects Kering to weather the storm better than most.

“Gucci is among the brands that should continue to benefit from the ongoing polarization in soft luxury,” analysts Melania Grippo and Guido Lucarelli said in a recent report.

“Furthermore, M&A could help lower the dependence on Gucci,” they added. “Kering could undertake an acquisition given its low leverage, and spend up to 20 billion euros in such a transaction.”

Hermès is due to publish quarterly sales figures on April 23, while Compagnie Financière Richemont reports annual results on May 15.

This story first appeared on WWD.

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