From Yves Saint Laurent's fall ad campaign

Kering’s Q2 Sales Rise Despite Sharp Drop in Gucci Sales

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From Yves Saint Laurent's fall ad campaign

From Yves Saint Laurent’s fall ad campaign

Paris—It was a case of good news/bad news for Kering SA today as the luxurygoods conglomerate reported second quarter revenue that exceeded analysts’ estimates. But sales at its premier brand Gucci continued to be down just demand for Yves Saint Laurent is on the rise.

In other news, Kering said it agreed to buy Swiss watchmaker Ulysse Nardin.

Sales were up 4% on a comparable basis, Kering said today in a statement after European markets closed. Analysts had predicted 3.1% growth. First-half recurring operating income fell 3.9% to 810 million euros, (about $1.08 billion), compared with the 800 million-euro median estimate.

“After a significant decline of 5% on the back of the LVMH negative surprise, this should be a support for the Kering share price,” Luca Solca, an analyst at BNP Paribas, said.

Upswing at Saint Laurent

Kering said today it anticipates an improvement in operating performance in the second half of the year and a return to positive revenue trends, including at Gucci.

Comparable sales for Gucci fell 2.4% missing analysts’ forecast for flat sales. Sales of Saint Laurent were up 29% exceeding the 22% gain predicted. Gucci’s overall decline in revenue was offset by strong performances by some of Kering’s other luxury brands, including Bottega Veneta and Yves Saint Laurent. Bottega Veneta’s revenue was up 13%, while Yves Saint Laurent’s rose 26%.

“The balance and consistency of [Yves Saint Laurent’s] brand positioning…explain, along with the appointment of Hedi Silmane as creative director, the tremendous recent success of the brand,” Deutsche Bank analysts said.

Gucci is introducing more expensive products and refurbishing stores as it seeks to attract shoppers who want products few others have. The strategy is hurting sales in Asia, where market conditions are difficult, Kering Chief Financial Officer Jean-Marc Duplaix said on a conference call.

While the slowdown at Gucci mirrors struggles that LVMH is having with Louis Vuitton, Kering’s smaller fashion and leathergoods brands account for a larger portion of sales. Bottega Veneta, Kering’s second-largest luxury brand for instance, reported revenue growth that exceeded analysts estimates.

Ulysse Nardin will become part of Kering’s luxury watches and jewelry division, the French company said today, without disclosing financial terms of the agreement. The deal is expected to be finalized during the second half of 2014.

“Ulysse Nardin benefits from a rich heritage, high profitability and solid growth prospects,” said Kering CEO Francois-Henri Pinault in a statement. “This structural acquisition will enable us to take advantage of the numerous synergies with our existing brands.”

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