French luxury group Kering which owns luxury brands such as Gucci, Yves Saint Laurent, Bottega Veneta, Puma or Boucheron reported a steep drop in full-year profits due to heavy restructuring costs. Kering full year 2013 profits fell to €50 million, compared to €1,05 billion in 2012.
Sales growth at Gucci, which accounts for more than half of Kering’s market value, fell to 0.2 percent in the three months to Dec. 31 at constant currencies from 0.6 percent in the previous quarter. Gucci‘s disappointing financials have been attributed to over-expansion in China where demand weakened and a painful upmarket repositioning.
Kering CEO Francois-Henri Pinault on Friday argued Gucci’s slowdown was self-inflicted and mainly due to its repositioning and clean-up of the brand’s retail network. “Of course, if I want to increase Gucci’s sales by 10 percent, I can just open the tap for entry-level price products and everything will fly off the shelf,” Pinault said. “But it would be very dangerous for the exclusivity of the brand.”
He said the number of entry-level products had been cut by 25-30 percent and the proportion of sales from no-logo products reached 62 percent in the fourth quarter, against 44 percent the previous year. “The strategy is working and helps us protect the desirability of the brand for the years to come,” Pinault said.
Kering Finance Director Jean-Marc Duplaix said same-store sales at Gucci were negative in China and slightly negative globally. For this year, he forecast they would grow in low single digits and at constant currencies, in single digits. Kering reported a steep drop in full-year net profits due to the restructuring of mail order business La Redoute, sold through a management buy-out, completing its exit from retail to focus on luxury and sports brands.
Yves Saint Laurent, under the cretive direction of designer Hedi Slimane appointed in 2012, has become the French company’s fastest-growing major brand, with like-for-like revenue up 42 percent in the fourth quarter alone. Half of Yves Saint Laurent’s sales came from wholesale revenue, which was up 43 percent last year.
Pinault said he was confident the group as a whole would increase revenue and recurring operating income this year, aiming for profitable organic growth at its luxury brands and a relaunch plan for its Puma sportswear brand. Puma, 85.6 percent owned by Kering, is banking on high-profile signings to help to stop sales falling this year after revenue tumbled more than expected in the last three months of 2013.
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