Kering’s Jewelry Shines in Q1, Gucci’s Struggle Continues

New York—Kering posted declining sales in Q1, dragged down by Gucci’s continuing struggles and geopolitical strife.

Its jewelry brands, however, posted double-digit growth, with Boucheron leading the charge.

On an earnings call Tuesday, Chief Financial Officer Armelle Poulou cited a “challenging and unsettled environment” with “low visibility and continued pressure on consumer confidence.”

The Middle East conflict has weighed on traffic in a key market and hurt demand from tourists.

The conflict began on Feb. 28 when the U.S. and Israel struck Iran, with thousands of deaths reported in the Middle East region since then, as per Reuters.

While there were “temporary disruptions,” its store network in the region is open, with the area representing 5 percent of its retail revenue.

Demand in the Middle East was down 11 percent in Q1 following growth in January and February.

Fellow luxury titan LVMH also reported a decline in demand in the region in its Q1.

Kering operates 79 stores in the region and has 1,100 employees.

A crisis unit is monitoring the situation, said Kering, and no employees have been affected as of press time.

“Beyond the localized impact, which we continue to monitor closely, the broader consideration going forward relates to potential impacts on global tourism trends and the macroeconomic backdrop,” said Kering.

Looking to its financials, for the first quarter, revenue totaled €3.57 billion ($4.21 billion), down 6 percent (flat on a comparable basis).

Revenue stabilized in Q1, said Kering CEO Luca de Meo in a statement, marking an important step in its recovery.

“This performance reflects the first tangible effects of our actions, despite a challenging geopolitical environment,” he said.

On Thursday, during its Capital Markets Day, the company will present a new roadmap, dubbed “ReconKering,” to get back to growth, which will include “well-defined brand strategies, a more effective organization, and strong financial discipline.”

Its star brand Gucci continued to weigh on its balance sheet, with sales down 14 percent in Q1.

“Gucci remains our top priority. A comprehensive turnaround is underway, with decisive actions across client, distribution, and, above all, the offer,” said de Meo.

New Gucci collections will be rolling out to stores throughout the year.

“Nearly all our houses delivered growth during the quarter, with a particularly strong contribution from jewelry,” said de Meo.

Its jewelry brands, which include Boucheron, Pomellato, DoDo, and Qeelin, remained a bright spot, with sales up 14 percent in the quarter (up 22 on a comparable basis) to €269 million ($317 million).

In its directly operated stores, jewelry sales were up 28 percent while wholesale revenue was up 14 percent.

Previously, these brands fell into Kering’s “Other Houses” division alongside Alexander McQueen and Balenciaga, but they are now in their own category.

Last month, Kering announced the creation of Kering Jewelry, a new division established to accelerate the growth of its jewelry brands.

Jean-Marc Duplaix, who is also Kering’s chief operating officer, was named CEO of Kering Jewelry.

The category did well across key regions, seeing “standout demand” in Japan and Asia-Pacific, particularly in South Korea, said Kering.

The category is “clearly standing out as a growth engine for the group,” said Poulou, adding that Kering was confident in jewelry’s ability to continue to boost overall revenue over time.

Boucheron delivered the strongest growth in jewelry this quarter, she noted.

The brand named Colman Domingo as an ambassador earlier this year.

Pomellato also did well, driven by growth in Japan and the success of its “Nudo,” “Iconica,” and “Pomellato Together” collections.

DoDo has seen several quarters of sustained growth, while Qeelin also posted a strong performance, driven by Asia.

Kering is underdeveloped in North America’s jewelry market, said Poulou, hinting that the company is working on this, with more details to follow during its Capital Markets Day.

The company announced late last year that it had signed an agreement to acquire an initial 20 percent stake in Raselli Franco Group, one of the largest independent jewelry manufacturers in Europe, with a pathway to full ownership of the company by 2032.

Looking at its overall performance, revenue from Kering’s directly operated stores, which includes its e-commerce sites, was down 2 percent year-over-year in Q1.

Revenue from wholesale was up 6 percent, boosted by its eyewear division.

Looking at its performance by region, North America saw the strongest growth in Q1 with sales up 9 percent on a comparable basis year-over-year.

Sales were down in all other regions, with the “rest of the world” segment, which includes the Middle East, leading the decline with sales down 8 percent. Western Europe followed (down 7 percent) and then Asia Pacific (down 4 percent).

North America was Kering’s third-largest market by revenue percentage in Q1, accounting for 23 percent of total revenue, up from 22 percent in the prior period. 

Asia Pacific took the top spot (31 percent) followed by Western Europe (29 percent).

As for its store network, Kering operated 1,672 stores, with 47 net closures in Q1. 

The retailer had previously announced plans to close 100 stores by December.

Looking to the year ahead, Kering did not provide financial guidance due to the “still uncertain geopolitical and macroeconomic environment.”

The company’s objective for the year is to return to growth and improve margins, said Kering, with more details to follow Thursday.