First surprise in over a year: Kering’s Q3 revenue drops 10% but slowdown is better than expected, shares jump | Earnings Report Highlights

After LVMH achieved organic revenue growth instead of decline, another luxury giant has delivered a surprise in its financial report: Kering Group, for the first time in a year, has reported quarterly sales performance that exceeded Wall Street expectations. Although there is still a year-on-year decline, its major brands showed improved quarter-on-quarter performance.

On Wednesday, October 22 local time, France-headquartered Kering Group announced that its revenue for the third quarter of this year fell by about 10% year-on-year to 3.42 billion euros, slightly higher than analysts’ expectations of 3.31 billion euros. The year-on-year decline narrowed compared to the 18% drop in the second quarter and 16% drop in the first half of the year. After four consecutive quarters of underperformance that were worse than market expectations, Kering’s quarterly revenue has beaten analysts' forecasts for the first time.

Kering’s same-store sales in the third quarter fell by 5%, just a third of the 15% drop in the second quarter, and the downward trend was slower than analysts’ forecasted decline of 8.65%. According to Kering’s financial report, half of the substantial improvement in same-store sales quarter-on-quarter can be attributed to favorable comparison bases.

Kering’s newly appointed CEO Luca de Meo pointed out that, compared to the second quarter, there was a marked improvement in third-quarter results. Nevertheless, the group’s performance is “still far below” the market average, and “we are working tirelessly to reverse the situation.”

After the financial report was released, Kering’s US OTC shares, which had fallen by 2.3% in early trading, jumped sharply, and within about five minutes towards the end of the morning session, the intraday gain widened to about 4%, with the increase exceeding 6% at the beginning of the afternoon session.

Gucci’s Third-Quarter Same-Store Sales Declined Slightly Less Than Expected

According to the financial report, in the third quarter, Kering’s flagship brand Gucci contributed nearly 40% of the group’s revenue, and the decline in same-store sales during the quarter narrowed by more than 40% compared to the second quarter, with the decline slightly less than analysts expected. Yves Saint Laurent (YSL)’s same-store sales declined by over half less quarter-on-quarter, while Bottega Veneta’s same-store sales growth accelerated.

In a context of weak market demand, Gucci replaced its creative director for the second time in about two years this March, appointing Demna Gvasalia, who previously led design at Balenciaga. Kering’s chief financial officer (CFO) Armelle Poulou said at the third-quarter report release that she was “very satisfied” with Demna’s show in Milan last month. She noted that although Gucci decided to sell his line in only 10 select stores worldwide, foot traffic at these boutiques has picked up.

Kering’s three major brands performed as follows:

Gucci: Third-quarter revenue 1.342 billion euros, down 18% year-on-year; same-store sales down 14%, analysts expected a 15% decline; second-quarter revenue down 27% year-on-year, same-store sales down 25%.

Yves Saint Laurent: Third-quarter revenue 620 million euros, down 7% year-on-year; same-store sales down 4%; second-quarter revenue down 13% year-on-year, same-store sales down 10%.

Bottega Veneta: Third-quarter revenue 393 million euros, down 1% year-on-year; same-store sales up 3%; second-quarter revenue down 1% year-on-year, same-store sales up 1%.

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