Kering SA (KER)’s Gucci luxury-goods brand posted the weakest quarterly sales growth in four years amid softening demand in Europe and China, increasing concern over a slowdown at the company’s biggest unit.
Gucci’s fourth-quarter comparable sales gained 0.2 percent, Paris-based Kering said today in a statement, decelerating from the third quarter and trailing estimates for 0.8 percent growth. The shares fell as much as 3.7 percent, wiping about 700 million euros ($960 million) off Kering’s market value.
Gucci’s revenue growth has been under pressure for about a year as luxury consumers, particularly from China, switch to brands they perceive to be more exclusive. That’s made Kering more reliant on smaller labels such as Bottega Veneta and Yves Saint Laurent. Both performed strongly in the fourth quarter, with sales at the latter up 42 percent on a comparable basis.
“Gucci is the key issue for the stock currently, given disruption from the repositioning in China,” Helen Norris, an analyst at Barclays, said in a note to clients. She has an overweight rating on the shares.
Kering shares traded 2.9 percent lower at 150.50 euros as of 1:24 p.m. in Paris. The stock has fallen 2 percent this year, reducing the company’s market value to 19 billion euros.
Kering is raising prices and tightening distribution at Gucci in an effort to elevate its biggest brand’s appeal. Still, the fourth quarter was Gucci’s weakest since the third quarter of 2009, when comparable sales fell 7 percent.
Gucci was affected by slackening tourist flows in Europe, Kering Chief Financial Officer Jean-Marc Duplaix said on a call with reporters today. Gucci’s fourth-quarter sales in the U.S. and Japan continued to cushion a drop in China that was less severe than in the previous three months, Duplaix said.
Kering is focused on making Gucci’s strategy work in China, Chief Executive Officer Francois-Henri Pinault said at a presentation in Paris. That includes slowing the pace of store openings there, he said. Kering doesn’t plan acquisitions in the fast-growing so-called accessible luxury segment, the CEO said.
Fourth-quarter sales at Kering’s luxury unit increased 7.4 percent on a comparable basis, beating estimates. That included growth of 13 percent at Bottega Veneta.
Kering’s 2013 recurring operating income fell to 1.75 billion euros from 1.79 billion euros a year earlier. Analysts predicted 1.77 billion euros, according to the median of 17 estimates compiled by Bloomberg. Total revenue rose 0.1 percent to 9.75 billion euros.
Net income slumped to 49.6 million euros from 1.05 billion euros. Kering said in November it expected 2013 profit to drop significantly on costs tied to the disposal of mail order unit La Redoute and one-time charges at Puma SE. (PUM) Excluding one-time items, profit fell 3.1 percent to 1.23 billion euros.
Puma, Europe’s second-largest sporting-goods maker, yesterday ruled out a rapid recovery after reporting full-year profit that declined more than analysts estimated. Kering owns about 84 percent of the German company, which has been undertaking restructuring measures since 2009.
Kering forecasts growth in both revenue and recurring operating income in 2014, it said in the statement. An executive at the presentation declined to confirm a previously announced target of 24 billion euros in revenue by 2020, saying it’s not a fixed goal.
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