Kering Q2 revenue falls 18% due to weak retail, wholesale sales and tourism slump

Investing.com -- Kering SA (EPA:PRTP) stock rose 4.5% on Wednesday after the luxury goods conglomerate reported first-half results that beat expectations on margins despite missing slightly on revenue.

On Tuesday, Kering reported a sharp 18% year-on-year decline in second-quarter revenue to €3.7 billion, slightly below the €3.96 billion consensus estimate from LSEG analysts. 

The drop was driven by broad-based weakness across its key fashion houses and a downturn in both retail and wholesale channels, compounded by declining tourism in key markets.

On a comparable basis, revenue fell 15%, with a further 3% drag from unfavorable currency effects. 

Sales from Kering’s directly operated retail network dropped 16%, as North America and Asia-Pacific showed modest sequential improvement but Western Europe and Japan deteriorated, “mainly due to a sharp decline in tourism,” the company said in its press release Tuesday.

Wholesale and Other revenue also fell 12% on a comparable basis, reflecting continued pressure across the group’s distribution channels.

The company’s flagship Gucci brand continued to face challenges, with sales dropping 25% on an organic basis in the second quarter, in line with consensus. Gucci’s EBIT margin fell to 16.1%, down 8.6 percentage points YoY and below the expected 16.7%, as store traffic remained weak despite higher average unit retail prices.

Yves Saint Laurent and the group’s “Other Houses” also posted double-digit revenue declines. Only Bottega Veneta and Kering (EPA:PRTP) Eyewear showed modest growth, with the latter boosted by a strong performance from Creed’s women’s fragrances.

For H1, Kering revenue fell 16% to €7.59 billion. Recurring operating income was €969 million in the first half. 

Chairman François-Henri Pinault called the first half “a period of momentous decisions” for the group, citing management changes and ongoing efforts to “streamline our distribution and cost base.”

Despite the disappointing performance, he said recent actions have “set healthy foundations for the next stages in Kering’s development.”

According to Barclays (LON:BARC) analysts, the overall EBIT beat delivered by Kering puts an end to several years of underperformance relative to market expectations.

"If this is good news, we note that the beat was driven by smaller divisions while Gucci was still under pressure," they said in a note.