On Wednesday, Kering posted group revenue for the full fiscal year 2022 of 20.4 billion euros (approximately $21.7 billion, based on current exchange rate) an increase of 15% over 2021.
But the fourth quarter spelled trouble for the company’s once star brands with Gucci reporting revenues down 14% on a comparable basis in the period, blaming high comps and pandemic-related lockdowns in China, and Balenciaga getting hit hard by controversy in the quarter.
On the company’s earnings call on Wednesday, Kering chairman and CEO François-Henri Pinault said that the results are “not at the level” of his expectations. “Kering reached many milestones last year, and yet, I’m not going to pretend that the results we are presenting today are up to our ambitions or that I am satisfied,” he told analysts.
As for Gucci, the company’s largest brand, Pinault said changes were underway before it even announced its new creative director last month. In fact, Sabato De Sarno’s appointment was the “end result” of a process that was underway to boost the Italian luxury house, including reducing wholesale, increasing quality and prices, and investing in more marketing initiatives.
And since De Sarno’s first collection will not debut until September, and will not be in-stores until early 2024, Gucci is relying on its design studio to fill the gap during this transition period. According to Pinault, consumers can expect to see more of what the design studio unveiled at Gucci’s menswear show in Milan last month. Together with menswear, travel and accessories will be the focal point for Gucci during this period, as Alessandro Michele’s last collection is scheduled to hit stores this spring.
“There will be a significant evolution in the aesthetic of the brand in the fashion component,” Pinault noted when referencing De Sarno’s new direction. “So, this vision of modernity based on the heritage of the brand is really different from what Alessandro brought to the brand with the success that we had over the last eight years. It’s a new chapter of the brand.”
The CEO added that he is “very confident” that this new direction will help propel Gucci’s growth trajectory moving forward.
As for Balenciaga, Pinault told analysts that the company is “determined” to rebuild the trust of the brand’s customers, who propelled the house to a “spectacular” trajectory through November – when the controversy erupted.
Balenciaga triggered outrage with two ad campaigns – one featured children posing alongside logo beer glasses and handbags shaped like teddy bears dressed in bondage gear. Another included a handbag resting on a page from the 2008 Supreme Court ruling “United States v. Williams,” which confirmed the promotion of child pornography as illegal and not protected by freedom of speech.
The images sparked backlash from consumers and even celebrity supporter Kim Kardashian questioned whether she should continue to represent the brand. This led to Balenciaga pulling the ads and its artistic director Demna Gvasalia issuing an apology for what he called a “stupid” mistake.
“We have now completed a comprehensive review of our procedures together with outside consultants, and we are building additional oversight at group level with authority across all our houses to prevent, of course, this from happening again,” Pinault said on Wednesday’s call. “We made a clear error of judgment with no intention at all to shock, to provoke or to hurt anyone. So I take full responsibility for this episode, and I present our apologies to anyone who was affected.”
The CEO added that no personnel changes will be made at Balenciaga and he believes the brand should begin to recover by the second quarter after two surveys shed light on the “regrettable incident.”
And while no clear guidance for 2023 was given on the call, the CEO added: “In an environment that remains uncertain, I have no doubt that 2023 will be another year of success for our houses and of growth for our group.”
