Gucci-owner Kering warns coronavirus could hit its business this year, but ‘impossible’ to gauge any damage yet

French luxury group Kering said the coronavirus outbreak in China could affect its business this year, as it posted a 16.2% rise in revenue to €15.9 billion for the full-year.

Kering KER, +2.81% said it has closed around half of its stores in mainland China and is postponing new openings and reviewing product launches in the country due to the impact of Covid-19.

However, Chief Executive François-Henri Pinault, whose family holding company owns 41% of the group, said it was “impossible” at this time to assess the impact of the virus on business and how fast it will recover.

The stock was up almost 2% on Wednesday in midmorning trading in Paris.

The outbreak of Covid-19 is taking its toll on the luxury sector, which is heavily reliant on Chinese shoppers. Britain’s Burberry BRBY, +1.59%warned last week that the outbreak is hurting demand for its products in China and scrapped its full-year sales and profit guidance. The company said 24 of its 64 stores in mainland China are currently closed and the remaining outlets are operating reduced hours with “significant” footfall declines.

Earlier this week, Italian puffer jacket maker Moncler MONC, +0.21% said shopper numbers at its stores in China had dropped 80% since the disease caused by a new strain of coronavirus emerged in Wuhan, China.

Kering posted higher-than-expected sales for the fourth quarter of 2019, driven by the stellar performance of Gucci. Sales at the Italian label, which now account for more than 80% of Kering’s recurring operating income, rose 11% on an organic basis in the fourth quarter.

Gucci returned to growth in North America helped by its Gucci Changemakers advertising and diversity campaign in the country. The U.S. business suffered last year after shoppers complained that a sweater it was selling resembled offensive blackface imagery. Gucci withdrew the garment and apologized publicly.

However, net income for the group, which also owns Balenciaga, Bottega Veneta and Alexander McQueen, was down 37.4% to €2.3 billion, impacted by a record Italian tax settlement of €1.25 billion related to Gucci.

Piral Dadhania, analyst at RBC Capital Markets, said: “We believe Gucci will deliver a soft-landing scenario in 2020, whilst momentum could pick up at Bottega Veneta (as menswear is launched in mid-2020) and YSL [Yves Saint Laurent] should benefit from some key flagship store openings late in 2019. Capital allocation will likely come into focus again in 2020, posttax settlement (€1.25bn) and elevated capex in 2019.”

Dadhania added that Kering has the balance sheet to potentially pursue midsize acquisitions if it chooses.

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