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Gucci-owner Kering's H1'20 profit plunges 63% on pandemic impact

Kering SA, owner of the Gucci and Yves Saint Laurent brands, said July 28 that first-half EPS in 2020 fell 63%, reflecting a 30% decline in revenue as the luxury company felt the full brunt of the COVID-19 pandemic in the second quarter.

"It is fair to say that the first half of 2020 has been the toughest period we have faced," CEO and Chairman François-Henri Pinault said in a statement.

The French company reported fully diluted EPS from continuing operations excluding nonrecurring items of 4.55 for the six months ended June 30, down from the 12.37 reported for the equivalent period of 2019.

Recurring net income for the group fell to €569.3 million from €1.56 billion, surpassing the S&P Global Capital IQ consensus estimate of €501.33 million, with three analysts reporting. Consolidated revenue was €5.38 billion, down 29.6% as reported and 30.1% on a comparable basis, slightly lower than consensus forecasts of €5.44 billion.

"The lack of visibility about how the worldwide personal luxury goods market will evolve in the next few months makes it impossible to forecast the group's second-half sales with any sufficient degree of reliability," Kering said in a statement. "However, the loss in revenue experienced in the first six months of the year should not be offset in the second half."

The company's biggest brand, Gucci, posted revenue of €3.07 billion, down 33.5% on a reported basis and 33.8% on a comparable basis. Results were reported after the close of Paris markets.

Two of Kering's peers have similarly taken first-half hits to their bottom line as a result of pandemic-induced country lockdowns, store closures and the near-disappearance of international travel, especially in the second quarter. On July 27, LVMH Moët Hennessy - Louis Vuitton Société Européenne reported an 84% decline in net profit for the first half of 2020, while Italian puffer-jacket company Moncler SpA reported a first-half operating loss for the first time in its history.

There are signs of improvement. As stores opened, especially in the Asia-Pacific region, Kering said it has seen "an encouraging recovery" led by mainland China. Online sales shot up 47.2% in the first half of the year and 72.4% in the second quarter. It also reported "resilient profitability, with recurring operating income of €952.4 million, yielding an operating margin of 17.7%, thanks to adjustment of the group's cost base."

In the second quarter, total revenue from Kering's various businesses fell 43.4% on a comparable basis, reflecting store closings. From April to June, revenue recovered gradually as stores reopened, first in Asia, especially mainland China, then in Europe and America.

Yves Saint Laurent reported revenue of €681.1 million in the first half, down 30% as reported and 30.6% on a comparable basis. Bottega Veneta had revenue of €503.1 million, down 8.4% as reported and 9.5% on a comparable basis. The company's eyewear business posted revenue of €242.6 million, down 24.4% as reported and 24.9% on a comparable basis.

"As the group cannot forecast its revenue levels for the coming months, it is not reasonably possible to project its recurring operating margin for 2020," Kering said. "The cost saving measures implemented in the first half should, however, benefit results in the second half of the year. In addition, the group will continue to exercise the same financial discipline as in prior years in order to contain the contraction in recurring operating margin in 2020."