KER Kering

By Matthew Dalton 

PARIS--The runaway success of Gucci shows no sign of slowing.

Sales at the Italian fashion house rose 13% last year to EUR4.38 billion ($4.68 billion), luxury conglomerate Kering SA, which owns Gucci, said Friday. Growth accelerated in the fourth quarter, when sales surged 22%.

Gucci's performance fueled a 17% increase in Kering's net profit last year, the company said.

Kering Chief Executive François-Henri Pinault, whose family is the company's controlling shareholder, says Gucci has plenty of room to grow. Kering is making investments to raise the productivity of Gucci stores to rival the luxury industry's most productive retailers, Mr. Pinault said. Hitting that target by itself would boost Gucci's sales 50%, he said.

"That's enormous, when you consider the size of Gucci," Mr. Pinault told reporters Friday.

The results reflect enduring momentum at Gucci under its creative director Alessandro Michele , who was named to the job in January 2015. Since then, Mr. Michele has revamped the brand with a mix of extravagant prints, and retro flourishes such as embroidery. His designs have earned praise from critics and drawn droves of customers back to a brand that had fallen out of fashion.

The full impact of Mr. Michele on Gucci's sales has yet to be felt: His designs are still being incorporated into the brand's collections.

"This is an excellent performance for Gucci and Kering overall," Mario Ortelli, an analyst at Sanford C. Bernstein, wrote in a note to clients. The brand's strong performance should continue, he said, as "Alessandro Michele-designed merchandise continues to be phased in and as the brand momentum continues to trickle from the fashion elite to the broader luxury consumer."

Gucci managed to flourish in a tough environment for the luxury industry, which has seen spending growth stall amid terror fears in Europe and a slowdown in consumption by globe-trotting Chinese shoppers. But Kering now faces the challenge of ensuring Gucci doesn't fall out of a favor as quickly as it was embraced.

Mr. Pinault argued that the brand is developing an enduring aesthetic under Mr. Michele that should insulate it from quickly changing tastes in ready-to-wear fashion.

"Gucci's desirability should last over time," Mr. Pinault said. "When you say, 'All this is fragile, because it's ready-to-wear.' No, it's not ready-to-wear. It's a creative universe that expresses itself in ready-to-wear."

Saint Laurent, another of Kering's flagship brands, also delivered strong results, with annual sales rising 25% to EUR1.22 billion. Kering's earnings beat analyst expectations, pushing its shares up more than 2.6% in afternoon trading.

The company said revenue for the year was EUR12.4 billion, up 6.9%. Sales growth accelerated in the fourth quarter, rising 10% to EUR3.5 billion.

Net profit for the year was EUR814 million.

Strong sales at Gucci and Saint Laurent offset problems at some of Kering's other brands, in particular at high-end leather goods maker Bottega Veneta. Sales at the Italian fashion house fell 8.7% to EUR1.17 billion. Revenue at the company was particularly hard hit by the terror attacks in Europe, which kept shoppers away from its stores on the continent.

Kering said it is preparing a communications campaign to attract new customers to the decades-old brand, best known for its woven leather handbags.

Write to Matthew Dalton at Matthew.Dalton@wsj.com

(END) Dow Jones Newswires

February 10, 2017 11:46 ET (16:46 GMT)

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