Kering shares plunge as Gucci slowdown seen hitting profits by up to 45%

By Louis Goss

Kering shares fell 8% on Wednesday after the French fashion house said it expects to see its profits drop by up to 45% in the first half of 2024 driven by a decline in revenue from its top money maker, Gucci.

The Parisian company, which owns fashion brands including Yves Saint Laurent and Balenciaga, said its "performance worsened considerably in the first quarter" due to "sluggish market conditions" which saw Gucci sales fall 21%.

Kering (FR:KER) shares, listed on the Euronext Paris stock exchange, fell 8% on Wednesday having lost 44% of their value over the previous 12 months following a slump in its profits caused by a slowdown in the luxury sector.

The French company, which was started as a timber trading company in Brittany in 1962 before transforming itself into a luxury goods seller in the 1990s, said it now expects its first half operating profit to drop between 40% and 45%, as it pushes ahead with plans to rejuvenate its business.

Analysts polled by Visible Alpha had expected a first-half operating profit drop of 29%.

Analysts from Stifel, led by Rogerio Fujimori, blamed a poor performance at Gucci for the slump in first quarter sales, as they said the Italian brand had failed to find a niche, particularly in Asia, as it is "not perceived as high-end enough or entry-price luxury."

In a call with investors, Kering's director of financial communications, Claire Voinnesson-Roblet, said the macroeconomic environment in China had created a situation in which Gucci products are not attractive to either wealthy customers or aspirational looking for "affordable products." She noted certain high-end customers are looking for luxury goods as investments that will accrue in value.

Gucci's sales fell 21% worldwide, to EUR2.1 billion in the first quarter of 2024, driven by a 28% slump in the Asia-Pacific, as buyers turned their backs on the brand, leading to a 19% drop in sales to individual customers via its retail segment which accounts for 90% of Gucci's revenue.

"The issue was really Gucci, which significantly underperformed the other brands in retail not only in Asia Pacific but also in Western Europe, North America and Japan," Stifel's analysts said, arguing investors should wait to see "green shoots" before buying shares in Kering.

Analysts at Citi, led by Thomas Chauvet, said Kering's outlook signals its push to rejuvenate the Gucci brand, under the leadership of recently appointed creative director Sabato de Sarno, "might be slower-than-expected in driving brand heat and store traffic."

Kering's chief financial officer Armelle Poulou told investors on a call that its push to boost the "desirability and exclusivity" of Gucci products, in order to capture the high end market, will "probably take a few quarters."

Citi's analysts, however, noted that retail sales at Bottega Veneta and Balenciaga are now showing signs of recovering from the slowdown in the luxury sector which has hit Kering's top rivals including Burberry (UK:BRBY).

Shares in midmarket fashion house Burberry fell 3% on Wednesday having lost 57% of their value over the past 12 months after the company issued a series of profit warnings driven by slumping sales.

-Louis Goss

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04-24-24 0507ET

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