French luxury group Kering delivered a rise in 2016 profits and sales on Friday that surpassed expectations, driven by the revival of its biggest brand, Gucci, and strong sales at fashion house Yves Saint Laurent. Gucci, under the leadership of designer Alessandro Michele and Chief Executive Marco Bizzarri since early 2015, has revamped its stores and adopted a vintage "geek chic" look that has proved popular with customers and driven higher sales.
"We recreated the Gucci dream. In 2017 we will make it a booster of sustainable growth," deputy chief executive Jean-Francois Palus told a news conference. "Gucci is cashing in on a brilliant self-help program, which has brought back the brand on the map," said Exane BNP Paribas analyst Luca Solca. Gucci and Yves Saint Laurent now generate 50 percent of their revenue from the tech-savvy generations born after 1980.
Kering, who also owns the Stella McCartney and Puma brands, was upbeat despite what it described as an uncertain business environment. The group said 2017 would see a stabilization of falling sales at underperforming Bottega Veneta, whose exclusive positioning will be strengthened. The strong results provided further evidence of a recovery in the wider luxury goods sector, after rival LVMH posted record revenue and profits for 2016 and Hermes gave a confident outlook for 2017.
Chairman and CEO Francois-Henri Pinault was similarly optimistic, citing positive signals in Hong Kong and improving demand in China and the United States. Recurring operating income for the year rose 14.5 percent to 1.886 billion euros ($2 billion) while group revenue rose 8.1 percent on a comparable basis to 12.385 billion euros. This compared with expectations for 1.83 billion euros of profit and 12.28 billion euros of sales according to a Reuters consensus conducted with Inquiry Financial.
The performance was achieved despite Gucci's decision to stop discounting and some 85 percent of Gucci sales in the quarter were from its new Michele's collection. Yves Saint Laurent, which accounts for over 10 percent of Kering's luxury sales, continued to progress with new designer Anthony Vaccarello at the helm since April. Yves Saint Laurent sales rose 20.5 percent during the quarter while the recurring operating margin of the division jumped over the 20 percent mark for the full year.
Bottega Veneta remained a weak spot with sales down 8.6 percent in the quarter. The brand was hurt by a slowdown in Chinese tourist spending in Japan and Europe. There were, however, signs of an improvement in Chinese tourist spending in western Europe in the last quarter of the year, the group said.
German sportswear firm Puma had strong sales growth and gave a confident forecast for 2017 on Thursday. Pinault said the priority was to improve profitability at Puma, when asked if he had any plans to sell the brand.