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Gucci's Loafers Rule, But We Want to Know What's Next

Gucci's Loafers Rule, But We Want to Know What's Next
(AP)

By    |   Thursday, 26 October 2017 03:01 PM

On the streets of London and New York, there's one ladies' shoe that stands out: the Gucci loafer.

Backless, full-shoe, fur-trimmed, brocade. They are everywhere. And the cheeky sneakers with embroidered motifs aren't far behind either.

It's little wonder, then, that the Gucci brand has continued its remarkable recovery, with sales growth excluding currency movements up 49.4 percent in the three months to Sept. 30.

That helped parent Kering SA lift third quarter comparable sales by 28.4 percent, well ahead of analysts' estimates for a 19.9 percent gain.

Gucci's turnaround from tired to tantalizing has been nothing short of phenomenal. And indications from the third quarter are that it has continued to win market share.

The key question for investors is whether its growth will be sustained.

Comparisons get tougher from here: it was in the final quarter of 2016 that Gucci's strength under creative director Alessandro Michele really became apparent.

What’s more, the strong euro could put off some Chinese consumers from travelling to Europe, where Gucci would be high on their shopping list.

It has some defenses. The brand has been a hit with both tourists and domestic customers alike, with local shoppers accounting for more than 60 percent of purchases. It has also strengthened its position in China with a new e-commerce site. Nevertheless, any currency-driven change in spending patterns remains a worry.

These factors could moderate growth in the coming quarters.

Gucci's performance helped Kering shares rise 7.8 percent on Tuesday morning to a fresh record high. They trade on a forward price earnings ratio of about 23.5 times, just above that of LVMH. That looks justified, given Gucci's continued success.

Fashion is notoriously fickle, and the biggest risk to the parent is that Gucci's very distinctive look falls out of fashion. It's notable that some of the celebrities who were early adopters of its new style have started sporting Burberry's recently rehabilitated check.

But all is not lost even if Gucci's sales slow. Kering is still working to lift the division's margin. On an earnings before interest and tax basis, it rose 4.4 percentage points in the first six months of the year, and the group expects a similar, or even slightly higher, gain in the second half. Saint Laurent's momentum has continued, even after its change in creative director. And Balenciaga has taken off, fueled by creative direction from Demna Gvasalia, lead member of design collective Vetements, a fashonista favorite.

Meanwhile, a divestment of Kering's 86 percent holding in Puma is looking more likely as the sportswear group recovers. Bottega Veneta, on the other hand, continues to face challenges.

With loafers aplenty -- not to mention consumers' continued appetite for Gucci handbags -- there's probably still more for the brand to go for, at least for the time being. But Michele needs to adapt the aesthetic to ensure that it does not go stale.

And Kering needs to be able to pull strong growth from its other key brands, as well as a disposal of the Puma stake, from its quilted leather backpack when Gucci's growth fades from stellar to merely stable.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

© Copyright 2019 Bloomberg L.P. All Rights Reserved.

   
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On the streets of London and New York, there's one ladies' shoe that stands out: the Gucci loafer.Backless, full-shoe, fur-trimmed, brocade. They are everywhere.
gucci, loafers, rule, next
552
2017-01-26
Thursday, 26 October 2017 03:01 PM
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