What's Up With Gucci's Slowing Sales and LVMH's Momentum?

Sales growth at French luxury group Kering’s Gucci brand has slowed after three years of breakneck growth, as rival LVMH accelerates.

The Italian label’s comparable sales rose 12.7% in the second quarter, compared with an analyst forecast of 14.5%. Although Kering’s overall sales gains were roughly in line with expectations, the waning momentum at its key brand could cause concern.

Gucci is coming up against tough comparisons, after sales surged 40% a year earlier and 20% in the previous quarter. Kering has been trying to persuade investors the brand’s growth is simply normalizing and that the decadent wares by designer Alessandro Michele aren’t going out of style.

“This slowdown was expected and has been commented on in recent quarters,” CFO Jean-Marc Duplaix said on a call.

As Gucci returns to earth, Kering is no longer outperforming rival LVMH.

LVMH sales for the second quarter breezed past analysts’ estimates, fueled by creative revamps at its Louis Vuitton and Christian Dior fashion brands. Sales of fashion and leather goods rose 20% on an organic basis. The stock rose as much as 3.3% in Paris to a record, lifting LVMH’s market value to almost 200 billion euros ($223 billion).

With CEO Bernard Arnault at the helm, LVMH’s growth accelerated as it boosted marketing despite concerns about a slowing economy in China, which has been driving luxury demand. European labels are benefiting from cuts to sales taxes and import duties, which are encouraging Chinese customers to visit stores at home rather than abroad.

Additionally, LVMH’s move to reshuffle its menswear designers last year is paying off. In his first year at Christian Dior, designer Kim Jones has won fans by reworking the brand’s classic Saddlebag for men, as well as designing leopard-print sneakers and romantic double-breasted suits. His counterpart at Louis Vuitton, Virgil Abloh, issued crocodile utility harnesses, puffer coats and runway collections rife with references to pop culture like the Wizard of Oz.

Another star designer, Hedi Slimane, took over at Celine, where he is overseeing women’s collections and has added the brand’s first menswear line. Adding to its bench of designers, LVMH also has recently signed Stella McCartney to develop a line of sustainable apparel and pop singer Rihanna who gets her own fashion line.

Meanwhile, Gucci still remains enormously profitable, with its operating margin rising to 41% for the first half. The company also said it continues to perform well in China, where authorities have taken steps to bring more luxury purchases onshore.

Kering reported after the close of trading. The shares are up 24% so far this year.

The company reported bright spots elsewhere, including the Bottega Veneta brand, which has been struggling. Though analysts expected a further decline in sales, it returned to growth in the quarter, as Kering said the first collections from a new creative director, Daniel Lee, were well received.

What’s Up With Gucci’s Slowing Sales and LVMH’s Momentum?

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