Gucci Owner Kering Urges Caution on China Luxury Rebound

(Bloomberg) — French fashion company Kering gave a cautious assessment of rebounding luxury sales in China following a “deep impact” on its flagship brand Gucci in the first quarter.

Sales in the Chinese mainland turned positive in April for Kering, whose other brands include Saint Laurent and Balenciaga, Chief Financial Officer Jean-Marc Duplaix told reporters Tuesday, citing the repatriation of tourist spending as well as pent-up demand following the coronavirus lockdown as factors supporting the recovery.

“We have to be very cautious as we only have a few weeks to analyze since stores were able to reopen,” Duplaix said. The trend of catching up on purchases thwarted by quarantine measures is likely to be short-term, he said.

The shares fell as much as 6.9% early Wednesday in Paris, and they’re down 21% so far this year.

First-quarter sales fell 16% globally, compared with previous guidance for a drop of around 15%, Kering said in a statement.

Gucci’s sales declined 23%. With stores still shuttered in most of the world, it’s “extremely difficult” to make predictions about when business will improve, Duplaix said. The company said it doesn’t expect sales to recover in the U.S. or Europe before June or July.

The results suggest “a hint of a brand-specific slowdown at Gucci,” given that all other labels within the Kering stable did better, Sanford C. Bernstein analyst Luca Solca said in a note.

Chinese clients have accounted for more than a third of luxury sales in recent years, and with lockdown measures still in place in the rest of the world, the industry is counting on them more than ever as restrictions ease.

LVMH, the owner of Louis Vuitton and Dior, last week flagged a rapid acceleration in the Chinese mainland in April as shoppers clamored to make purchases delayed by lockdowns. But with the Chinese economy shrinking last quarter for the first time since at least 1992, many consumers are expected to rein in spending. That’s cast doubt on whether the current bout of what’s been called “revenge spending” signals a durable rebound.

Kering proposed to cut its 2019 dividend by 30% as well as reducing pay for its chief executive officer and deputy CEO.