*

Kering's revenue falls less than expected

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China sales improve with tailored products like Gucci's

Giglio

handbag

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Kering's eyewear division remains core to strategy, exec

says

By Mimosa Spencer and Tassilo Hummel

PARIS, Oct 22 (Reuters) - Kering's overall group sales

fell less than analysts expected in the third quarter thanks to

the performance of its smaller brands and some encouraging signs

at ailing flagship brand Gucci, the group said on Wednesday.

The trading update, the first under the leadership of

newly-appointed CEO Luce de Meo, was likely to further boost

hope around the company amid newfound optimism in the sector.

Yet it also came as a reminder of the steep challenges

Kering is facing to bring shoppers back to its boutiques as

investors are placing big bets on the Italian's ability to turn

around the heavily indebted conglomerate.

A 14% drop in Gucci's sales marked a seventh consecutive

quarterly double-digit decline for the brand, which accounts for

more than half of group profit, but after two years of decline,

Kering executives signalled some improvement in key markets.

Kering said total revenue in the July to September period

reached 3.42 billion euros ($3.98 billion), a 5% decrease from

last year, beating analysts expectations for a 9.6% drop,

according to Visible Alpha data.

Smaller houses Yves Saint Laurent and Bottega Veneta

performed more strongly than expected, lifting overall group

results.

"Kering's third-quarter performance ... remains far below

that of the market," de Meo said in a statement. "We are working

relentlessly on our turnaround, as shown by our recent

decisions," he added.

Kering shares have risen 85% since de Meo's hire was announced

in June, well ahead of a 12% gain for the STOXX Europe Luxury 10

over the same period, as investors bet on rapid

restructuring and a refocus on core fashion.

CHINA TRENDS IMPROVE

Trends in China improved markedly over the last quarter,

Kering's Chief Financial Officer Armelle Poulou told journalists

on a call, echoing similar remarks from LVMH and

Hermes.

LVMH last week reported better-than-expected quarterly sales,

sparking a rally in luxury stocks on hopes the sector's

prolonged slump in China and among aspirational consumers was

easing.

"Things are going in the right direction," Poulou said,

pointing to the success of recent efforts to offer products

specially tailored for Chinese shoppers like a downsized version

of Gucci's Giglio handbag. All other regions also improved, she

added.

Gucci's first collection from creative direction Demna,

appointed this year amid a wider reshuffle in the industry,

boosted store traffic in the select boutiques where it was

available, Poulou said.

De Meo, a former Renault boss whose package included a 20

million euro sign-on bonus in addition to fixed and variable

annual pay, is racing to streamline the group, cut debt and

steer resources toward Gucci's revival.

This week, the firm said it struck a $4.7 billion deal to sell

it's beauty arm to L'Oréal while granting the cosmetics giant

licences to use its brands, with de Meo flagging more deals to

come.

Kering executives on a call rejected speculation its growing

eyewear division could be the subject of a similar move, saying

it was "core" to Kering's strategy.

Chief Operating Officer Jean-Marc Duplaix declined to say

how much of the transaction value was for the sale of perfume

maker Creed - bought by Kering at a 3.5 billion euro valuation

only two years ago.

He, however, added there would be a "net gain" in Kering's

books at the end of the year for the overall transaction.