Kering Warns of Sharp Profit Decline as Gucci Sales Slump

Kering SA, the French luxury group that owns Gucci, has issued a profit warning for the first half of 2024 after the brand's comparable sales plummeted by 18% in the first quarter. The company announced that its recurring operating income is expected to decrease by 40% to 45% in the first half, compared to analysts' projections of a 24% to 30% decline.

Gucci, Kering's largest brand, saw its revenue decrease by 18% on a comparable basis and by 21% as reported, to €2.08 billion. The brand's performance was mainly impacted by sluggish demand in Asia Pacific, especially in China. "Gucci's new collections have been exceptionally well received, particularly in the ready-to-wear and shoes categories, but does not anticipate significant improvement in Gucci's sales in the second quarter," Kering noted.

Why this matters: The slowdown in the global luxury market, reflected in the MSCI index of global luxury stocks, and the crash in Swiss watch exports in China and Hong Kong, are also contributing to Kering's setbacks. The company's priority is to get Gucci back on track, but this process is proving to be challenging and will likely take time.

Kering's performance mirrored the continued deceleration in the luxury sector over the past year, as a growing number of affluent consumers curtailed their spending on Gucci products. Analysts believe Gucci's recovery will be gradual, and the brand's design transition and new aesthetics are taking longer than expected to drive brand heat and store traffic.

The warning caused Kering's shares to slump by almost 8% in early trading, dragging down the shares of its French rivals LVMH and Hermès as well. Kering's market value has eroded by almost $13.9 billion or 25% since warning about falling Gucci sales in late March. The company continues to lag behind its larger rival, LVMH, which reported 3% organic revenue growth in the first quarter.

Kering is working on improving Gucci's handbag offering, a crucial category, and plans to accelerate new launches this year under the brand's new creative director, Sabato De Sarno. However, the turnaround will take time as the luxury goods market cools, particularly in China, where Gucci is "more positioned in the middle" and not benefiting from the polarization between high-end and more affordable products.

Key Takeaways

• Kering issues profit warning, expects 40-45% decline in H1 2024 operating income.
• Gucci's Q1 2024 sales plunged 18% due to sluggish demand in Asia, especially China.
• Luxury market slowdown and watch export crash in China contribute to Kering's setbacks.
• Kering's shares slumped 8% after the warning, dragging down LVMH and Hermès as well.
• Kering aims to improve Gucci's handbag offerings, but turnaround will take time amid market cooling.