Kering Earnings Beat Estimates as Gucci Returns to Growth

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Kering SA reported first-half earnings that beat analysts’ estimates as sales at the Gucci luxury label grew for the first time in almost two years.

Recurring operating income fell 5.4 percent to 773 million euros ($859 million), the Paris-based company said in a statement after European markets closed Monday. Analysts predicted 758 million euros, according to the median of 19 estimates compiled by Bloomberg.

Comparable sales at Gucci increased 4.6 percent in the second quarter, defying analysts’ predictions for a 3.2 percent decline. That represents a rebound from a 7.9 percent drop in the previous three months. Kering flagged in February that 2015 would be a year of transition for its biggest brand as it overhauls management, drops distributors and introduces new products to help restore growth at the unit.

“Kering has posted a significantly positive surprise in terms of organic growth,” Exane BNP Paribas analyst Luca Solca said by e-mail, calling out Gucci as well as the Bottega Veneta brand, which he said benefited from exposure to Japan.

Gucci’s growth was supported by demand from Chinese tourists in Japan and Western Europe, and by sales of discounted merchandise in China, Chief Financial Officer Jean-Marc Duplaix said on a call with reporters.

Gucci offered discounts of as much as 50 percent in China to clear inventory designed by its former creative director, Bloomberg News reported in May. Those and other steps weighed on Gucci’s profit, which fell 4.9 percent in the first half.

Rejuvenating Gucci

“We are particularly satisfied with the progress at Gucci,” Kering Chief Executive Officer Francois-Henri Pinault said.

Kering is seeking to rejuvenate Gucci as demand for luxury goods slows in parts of Asia, where the French company got more than 40 percent of sales last year. U.K. trenchcoat maker Burberry Group Plc said last week it may try to lower its rent bill in Hong Kong to offset a worsening slump there that drove sales growth to a two-year low. The business climate isn’t improving in the island city, Duplaix said.

Kering’s revenue reached 5.5 billion euros in the first half, up 17 percent from a year earlier, or 3.5 percent on a comparable basis, the company said. Second-quarter comparable sales at Bottega Veneta advanced 9.3 percent, beating analysts’ estimates for a 5 percent gain.

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