PARIS (Reuters) -Sales at Kering's flagship brand Gucci fell by 14% in the third quarter with overall group sales down 5% on a like-for-like basis, the French group said on Wednesday, beating market expectations.  

It was the seventh consecutive quarter that Gucci's business shrank by double digits, reminding investors of the dire reality in the brand's boutiques despite newfound optimism in the sector. 

"Kering's third-quarter performance, while representing a clear sequential improvement, remains far below that of the market," CEO Luca de Meo said in a statement. 

In the first trading update under de Meo, hired to accelerate a turnaround after two years of falling sales, Kering said revenue in the July to September period reached 3.42 billion euros ($3.98 billion).

Analysts expected group sales to fall 9.6% with Gucci down about 15%, according to Visible Alpha data. Smaller houses Yves Saint Laurent and Bottega Veneta performed more strongly than expected, lifting overall group results. 

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

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 announced the $4.7 billion sale of its beauty arm to L'Oréal with de Meo flagging more deals to come.  

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. 

"Our performance remained negative in China but showed substantial sequential improvement," Poulou said, adding that other regions also improved. 

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.