Kering still owes China: Asian demand helps H1 revenue

ANALYSIS_ Kering said Europe enjoyed a "rebound" in the second quarter, driven by stronger local and tourist demand and pointed to buoyant business in Japan, where shoppers spent their money at home, partly because of the weak yen.

Kering posted a first-half operating profit of 842.7 million euros, beating expectations of 808 million euros.

Strong sales of luxury goods in China and other emerging markets led the growth at Kering Group during the first half of 2013. Underlying sales rose 5.2percent in the three months to June, up from 3.3 percent in the previous quarter as the French company's upmarket brands were largely pursued by shoppers in Asia and the US.

The fastest growth at Kering was in emerging markets such as China, where sales rose 19 percent. Sales of leather goods, such as handbags and wallets, rose 9 percent led by an "outstanding" performance in sales of items for men, as the group highlighted Thursday.

Nevertheless, Kering Finance Director Jean-Marc Duplaix told journalists in a conference call Thursday that demand in China remained at levels "lower than what we have seen in the past." Duplaix pointed to Gucci as a case in point, recalling that Gucci sales in Europe rose a higher-than-expected 10 percent in the second quarter and were up 6 percent in Japan but fell 4 percent in China.

High demand for luxury labels boost Kering's H1

Meanwhile, the Bottega Veneta brand was the fastest growing of Kering's major luxury labels, as it saw sales rose 17.2percent in the first quarter. Alexander McQueen and Stella McCartney also offered strong and positive performance.

Growth at Kering's luxury brands helped balance poor sales and profits at its Puma sports brand in the second quarter. Underlying profits at the sports division dived by nearly a quarter in the half year but group profits rose 2.9 percent to 983 million euros. Kering says it expects strong sales at its luxury labels to continue over the next six months as it opens new stores.

Kering's luxury sales in the three months to June 30 were up 9.4 percent on a like-for-like basis, compared with a rise of 6.4 percent in the previous three months.

Sales at Gucci, the group's biggest fashion brand, remained steady at circa 4 percent on a comparative basis.

"Even if the Gucci brand shares some of the issues faced by Louis Vuitton around 'ubiquity', its margin momentum is superior, and at the group level, Kering's performance is boosted by brands like Bottega Veneta, YSL, which are big enough (they account for 43 percent of total luxury sales) to act as growth boosters," HSBC analyst Antoine Belge said in a note to investors.

“Trends recorded in the first six months of 2013 should continue in the second half,” Kering advanced on the back of the news release, maintaining its goal and outlook for the full year: “In this context, the group maintains its goal of improving its operating and financial performances in the full year.”

Image: Gucci