Kering beats third-quarter forecasts as smaller brands cushion Gucci decline

By Mimosa Spencer and Tassilo Hummel

PARIS (Reuters) -Kering's overall group sales fell less than analysts expected in the third quarter thanks to the performance of its smaller brands and some encouraging signs at ailing flagship brand Gucci, the group said on Wednesday. 

The trading update, the first under the leadership of newly-appointed CEO Luce de Meo, was likely to further boost hope around the company amid newfound optimism in the sector.

Yet it also came as a reminder of the steep challenges Kering is facing to bring shoppers back to its boutiques as investors are placing big bets on the Italian's ability to turn around the heavily indebted conglomerate. 

A 14% drop in Gucci's sales marked a seventh consecutive quarterly double-digit decline for the brand, which accounts for more than half of group profit, but Kering's comments on improvement in key markets China and the United States further fuelled 

Kering said total revenue in the July to September period reached 3.42 billion euros ($3.98 billion), a 5% decrease from last year, beating analysts expectations for a 9.6% drop, according to Visible Alpha data.

Smaller houses Yves Saint Laurent and Bottega Veneta performed more strongly than expected, lifting overall group results. 

"Kering’s third-quarter performance ... remains far below that of the market," de Meo said in a statement. "We are working relentlessly on our turnaround, as shown by our recent decisions," he added.

Kering shares have risen 85% since de Meo's hire was announced in June, well ahead of a 12% gain for the STOXX Europe Luxury 10 over the same period, as investors bet on rapid restructuring and a refocus on core fashion.

CHINA TRENDS IMPROVE 

Trends in China improved markedly over the last quarter, Kering's Chief Financial Officer Armelle Poulou told journalists on a call, echoing similar remarks from LVMH and Hermes. 

LVMH last week reported better-than-expected quarterly sales, sparking a rally in luxury stocks on hopes the sector's prolonged slump in China and among aspirational consumers was easing. 

"Things are going in the right direction," Poulou said, pointing to the success of recent efforts to offer products specially tailored for Chinese shoppers like a downsized version of Gucci's Giglio handbag. All other regions also improved, she added.

Gucci's first collection from creative direction Demna, appointed this year amid a wider reshuffle in the industry, boosted store traffic in the select boutiques where it was available, Poulou said.  

De Meo, a former Renault boss whose package included a 20 million euro sign-on bonus in addition to fixed and variable annual pay, is racing to streamline the group, cut debt and steer resources toward Gucci's revival. 

This week, the firm said it struck a $4.7 billion deal to sell it's beauty arm to L'Oréal while granting the cosmetics giant licences to use its brands, with de Meo flagging more deals to come.  

Kering executives on a call rejected speculation its growing eyewear division could be the subject of a similar move, saying it was "core" to Kering's strategy. 

Chief Operating Officer Jean-Marc Duplaix declined to say how much of the transaction value was for the sale of perfume maker Creed - bought by Kering at a 3.5 billion euro valuation only two years ago. 

He, however, added there would be a "net gain" in Kering's books at the end of the year for the overall transaction. 

(Reporting by Tassilo Hummel; Editing by Kirsten Donovan)