Gucci owner Kering’s shares tumble 14% on profit warning

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Shares in French luxury conglomerate Kering dropped 14 per cent after falling sales in Asia for its Gucci brand triggered a rare profit warning.

The company’s shares fell sharply on Wednesday and are down by more than a third in the last 12 months.

Other luxury groups were also pulled down, with LVMH and Richemont falling 3 per cent. Prada shares, which trade in Hong Kong, fell as much as 11 per cent initially before a partial recovery.

Paris-based Kering said on Tuesday that sales in the first quarter are expected to fall by 10 per cent year on year on a comparable basis, with those at Gucci — which accounted for two-thirds of group operating income last year — falling nearly 20 per cent.

“This performance primarily reflects a steeper sales drop at Gucci, notably in Asia Pacific,” Kering said. The group will report first-quarter sales at the end of April.

Gucci is in the middle of a turnaround under new management and a new creative director, Sabato de Sarno, but this has yet to bear fruit.

De Sarno’s collections have been in stores since mid-February and Kering said they were “meeting with a highly favourable reception”, adding that availability of the new products will increase in the coming months.

Kering, which is controlled by billionaire François-Henri Pinault, had said last month that the group plans to invest in Gucci’s transformation this year, which would be likely to hit margins in 2024.

Although Kering’s woes have centred on Gucci, its other brands, including Saint Laurent and Bottega Veneta, also suffered from falling sales last year.

Its profit warning contrasts with the performance of bigger rival luxury groups LVMH and Hermès, which increased sales by double digits in their most recent quarters.

As the luxury market slows from several years of record sales growth and profits, the fortunes of the sector’s strongest companies and weakest players are expected to diverge further.

UBS expects luxury sector sales growth to slow to an average of 5 per cent in 2024, after delivering an average of 10 per cent organic growth each year since 2016.

One factor is how much brands cater to so-called aspirational shoppers, who are more vulnerable to economic pressures, as opposed to older, wealthier buyers. Gucci in particular had fostered a younger, more fashion- forward clientele under its star former designer Alessandro Michele.

That proved hugely successful for several years but came under pressure as tastes changed. Once pandemic-era stimulus cheques were spent in the US and Europe, and China’s economic outlook became more uncertain, Gucci’s performance faltered further.

“The jury is out on whether the Chinese will like the Sabato De Sarno quiet luxury . . . We are sitting on the fence waiting for more tangible signs that the new Gucci works,” wrote Luca Solca, analyst at Bernstein. 

“The bad news on Kering is company specific, but is also a good reminder that consumer confidence and discretionary spend in China is soft.”


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