Kering to Reorganize Luxury Unit as Division Head Leaves Company

Kering SA said it will reorganize its luxury division after its managing director stepped down, while reporting a 1.2 percent gain in first-quarter sales as revenue at its Gucci business slowed.

Revenue rose to 2.4 billion euros ($3.32 billion), Paris-based Kering said late yesterday. Analysts predicted 2.37 billion euros. Luxury sales advanced 6.3 percent, excluding acquisitions and currency fluctuations, topping the 6.2 percent median estimate.

Alexis Babeau, managing director of Kering’s luxury unit since 2011, will leave “to take his career in a new direction,” while the company seeks to increase focus on individual brands, which are growing faster than Gucci. Starting next month, his role will be split into two, with Marco Bizzarri overseeing couture and leather-goods brands, excluding Gucci, and former LVMH Moet Hennessy Louis Vuitton SA executive Albert Bensoussan heading watches and jewelry.

“We look with favor at the organizational change,” Mario Ortelli, an analyst at Sanford C. Bernstein in London, said via e-mail.

Direct sales of Bottega Veneta handbags, Saint Laurent dresses and other luxury goods surged 13 percent in the quarter, led by demand in mature markets. Gucci, Kering’s biggest brand, also reported improved sales in its own stores, though on a comparable basis the revenue increase of 0.3 percent trailed analysts’ estimates of 0.5 percent as its policy of adding more expensive products and tightening distribution weighed on growth.

Subdued Growth

Gucci’s “somewhat subdued” growth leaves investors “with unresolved doubts on the future trajectory of the brand,” Luca Solca, an analyst at Exane BNP Paribas in London, said via e-mail. Investors will have to wait for the second half of 2014 “to see more sanguine growth.”

Kering’s shares rose 1.4 percent to 153.4 euros at the close of trading today in Paris. The shares have fallen 0.2 percent this year, giving the maker of Balenciaga shoes and Volcom boardshorts a market value of 19.4 billion euros.

Kering is “confident” it will improve its operating performance in 2014, Chief Executive Officer Francois-Henri Pinault said in the statement.

Bizzarri will continue to lead handbag maker Bottega Veneta until a replacement is found, while Gucci CEO Patrizio di Marco will report directly to Pinault. Pinault will remain chairman of the Saint Laurent brand, which is “at a pivotal moment,” Kering also said.

Strategic Impact

The changes won’t affect Kering’s strategy, which is focused on organic growth, group Managing Director Jean-Francois Palus said on a conference call. Kering won’t acquire more sporting and lifestyle brands until it has turned round Puma SE, Pinault said in an April 10 interview.

Gucci is introducing more expensive products and upgrading stores as it seeks to win back customers, who are switching to brands they perceive to be more exclusive. Quarterly sales in Gucci’s own stores gained 6 percent with “excellent” growth in Japan, Kering said. Sales are “still negative” in mainland China, though trends are “improving,” Kering Chief Financial Officer Jean-Marc Duplaix said on a conference call.

Saint Laurent

Comparable quarterly revenue rose fastest at Saint Laurent, increasing 27 percent, exceeding analysts’ estimates for 18 percent growth. Ready-to-wear and leather-goods growth at the brand was “outstanding,” Kering said.

LVMH, the French owner of Gucci competitor Louis Vuitton, this month reported a 9 percent gain in first-quarter fashion and leather-goods revenue, its fastest growth in two years. Burberry Group Plc, the U.K.’s largest luxury-goods maker, also reported rising sales growth.

Comparable sales at Kering’s sporting-goods maker Puma fell 0.4 percent, less than analysts estimated. The company is encouraged by the reception of Puma’s new products and is confident in its ability to turn round the maker of evoPower soccer boots, Duplaix said.

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