Is Gucci too trendy? -WSJ

Europe’s luxury brands have shrugged off the pandemic and inflation, but fickle tastes in fashion still have the power to bring them down.

Shares of Gucci-owner Kering fell 5% in European morning trade on Friday in reaction to quarterly results released the night before. Sales rose 21% year-over-year in the three months to March, but the Gucci brand, Kering’s top brand for both sales and profits, appeared to lag among Chinese shoppers based on the sales decline in the Labels up 6% in the Asia-Pacific region.

Management blamed fresh Covid-19 lockdowns in mainland China, although just a tenth of Gucci stores in the country were closed for a month of the quarter. Second-biggest label Saint Laurent, which is admittedly a little less reliant on Chinese customers, still managed to post sales growth of 15% in Asia.

Concerns over whether Gucci can keep its trend have long made Kering’s stock more volatile than its main rival LVMH,

to which it is currently trading at a 30% discount as a multiple of forward earnings. LVMH’s business is more diverse, and sales of brands like Christian Dior and Louis Vuitton seem less affected by sudden trend changes.

Shareholders of Europe’s top luxury brands may be worried about the wrong things. The region’s top five luxury stocks have lost an average of 15% of their value since the start of the year amid concerns about inflation, rising interest rates and the impact of the war between Russia and Ukraine on the global economy and demand for luxury goods.

So far there are no signs of a slowdown. Among the largest luxury brands that have already reported first-quarter results is Hermès,

LVMH and Kering — all increased sales by at least 20%. In Europe, Kering said, demand is back to pre-pandemic levels. The region used to get half its sales from tourists, and the company has since replaced that lost business with local buyers.

Inflation isn’t slowing spending, even when luxury brands are raising prices more than most companies. LVMH saw no change in buying behavior after marking some of its Louis Vuitton handbags up 20% earlier this year. Privately owned Chanel has been the most aggressive during the pandemic. A small classic flap bag that cost $5,200 in November 2019 will fetch shoppers $8,200 today, according to Jefferies analysis.

Pandemic restrictions in China mean the second quarter is likely to be tougher for luxury brands, which generate a significant portion of sales in this key market. But it should be a temporary blip for the stronger labels. The vagaries of fashion are still the biggest threat to brands like Gucci.

write to Carol Ryan at

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