Kering Group said Wednesday its first-half profit rose 7% on strong growth at some of its luxury brands, though a steep decline in sales at its flagship Gucci fashion house exposed how weakness in Asian markets continues to hit luxury firms.
The French group said Gucci’s revenue—which accounts for 37% of the group’s total—fell 4.5% to €1.6 billion ($2.1 billion). Kering Chief Financial Officer Jean-Marc Duplaix said the decline didn’t come as a surprise, as the company expected to see an improvement only in the second half of the year.
In trying to reposition Gucci, Kering is launching new handbags and has reduced the number of Gucci leather goods priced at the entry level. But its first-half performance suggests the strategy isn’t yet paying off. Jean-François Palus, Kering’s managing director, said analysts’ expectations for low-single-digit revenue growth at Gucci in the second half were “sensible.”
Sales in Singapore, Taiwan and Hong Kong continued to decline in the first half, the company said. Gucci sales fared much better in the U.S., rising 7%, and in Japan, where sales jumped 17%.
Gucci’s overall decline in revenue was offset by strong performances by some of Kering’s other luxury brands, including Bottega Veneta and Yves Saint Laurent. Bottega Veneta’s revenue was up 13%, while Yves Saint Laurent’s rose 26%.
Kering’s total revenue for the first half of the year reached €4.75 billion, up from €4.68 billion a year ago. Revenue was buoyed by a 5% rise in the luxury division that offset a 6% revenue decline in sport and lifestyle activities.
Kering first-half net profit rose to €185 million from €173 million in the same period a year earlier. Kering’s operating income slipped 3.9% to €810 million. Operating margin was 17.1%, compared with 18% for the first six months of 2013. Earnings before interest tax depreciation and amortization, or Ebitda, was €967 million, down 1.7%.
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