Gucci is the kind of name people know on sight. Its owner, Kering (KER), just learned that fame doesn’t sell handbags. Gucci’s sales fell 6% from July to September. Kering’s shares dropped nearly 17% in Paris on Friday, the Journal’s Joshua Kirby reports. That’s a brutal day for the company behind one of the most famous brands on earth.
Group sales fell 1% on a comparable basis to €3.345 billion, about $3.75 billion. Gucci is the problem because Gucci is most of the group. The brand brings in nearly half of Kering’s revenue, and its sales have been falling for years. The Journal cites two causes. The brand’s heat has cooled. And the shoppers who stretch to buy a first luxury bag, especially in China, have less to stretch with. Finance chief Armelle Poulou said the company is “not where it wants to be.” China, she said, is the group’s single biggest challenge.
The drop stings more because the prior quarter looked like a turn. Back then Kering talked about a “marked acceleration” at Gucci that lifted group sales 2%. Now that’s gone. Jefferies analyst James Grzinic wrote that weak luxury demand had beaten the group’s self-help efforts. Kering says it’ll cut costs to protect its profit margin this year while keeping up investment in its brands. Analysts at Bernstein read that as a company focusing on what it can control. They also sounded less sure of a quick turnaround.
New bosses, same problem
Kering has changed almost everyone at the top. Last year it hired an outsider as group CEO, Luca de Meo, who used to run the carmaker Renault. Gucci got a new CEO. Earlier that year it got a new artistic director, Demna Gvasalia, after a decade at Balenciaga. New designs take time to reach the stores. They take longer to change how a shopper feels. “The recovery of Gucci remains our defining priority,” Kering said. The market gave it one day, and the day went badly.
Our read
This is Investments and Risk (IN04). Kering isn’t held in any of our books, and we’re not changing that. Our verdict is watch. Two weeks ago we wrote that LVMH’s growth had nearly stalled and that one bank called the luxury boom over. Kering is the same story with less cushion. LVMH has many big brands. Kering leans on one. When one label is half the company, a bad quarter at that label is a bad quarter for the stock. That’s concentration risk, and it’s the same lesson as a portfolio with one giant position. Luxury is a mood stock. Brand heat, the Journal’s phrase, comes and goes with fashion, and fashion doesn’t keep a schedule.
The concrete thing in your plan is the single stock you own because you love the product. Most people have one. A car, a phone, a bag, a coffee. Loving the product tells you nothing about the price, the quarter or the next designer. This week, find that position and check its weight. If it’s more than a sliver of the whole, decide that on purpose rather than by habit, and bring it to your next review. A well-loved brand is a fine thing to carry. It’s a poor reason to carry a stock. The forecast matters more than the logo on the umbrella.