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Kering Expects Investments, Slowing Sales Growth to Hit Profitability in 2024 — Update

By Andrea Figueras

 

Gucci owner Kering expects investments in its fashion houses and a normalization of sales growth across the luxury sector to weigh on its profitability this year.

The French luxury giant on Thursday reported fourth-quarter sales of 4.97 billion euros ($5.35 billion), against expectations of EUR4.91 billion, according to consensus estimates provided by Visible Alpha. Gucci sales fell 8% in reported terms to EUR2.53 billion in the final quarter.

For 2023 as a whole, the group reported recurring operating income of EUR4.75 billion, down from EUR5.59 billion in 2022.

For 2024, Kering expects a decline compared with last year's figure, particularly in the first half, it said.

"In a market environment that remains uncertain in early 2024, our continuing investments in our Houses will put pressure on our results in the short term," the luxury conglomerate said.

The company booked full-year revenue of EUR19.57 billion, down from EUR20.35 billion in the previous year, but broadly in line with analysts' estimates of EUR19.515 billion.

Its Gucci brand, the group's largest contributor to group revenue, posted EUR9.87 billion, down from EUR10.49 billion in 2022, but slightly ahead of analysts' prospects of EUR9.09 billion, according to Visible Alpha data.

The brand is in the midst of a turnaround process after the appointment of Sabato de Sarno in January 2023 as its creative chief. Some analysts pointed out that the plan is still at an early stage and that signs of improvement will take time.

Operating profit fell to EUR4.63 billion in 2023 from EUR5.395 billion, falling short of analysts' estimates of EUR4.89 billion, according to Visible Alpha consensus.

Full-year net profit dropped to EUR2.98 billion from EUR3.61 billion in 2022, while analysts had seen net profit of EUR3.17 billion, according to Visible Alpha data.

Kering proposed a stable dividend of EUR14.00 a share for 2023.

After the postpandemic euphoria, the luxury industry is facing a slowdown in demand due to high interest rates and inflation that have squeezed consumer spending.

Furthermore, economic woes in China--one of the industry's largest markets--prompted a slower-than-expected recovery for luxury companies in the country, adding to the sector's downfall.

To date, results show a mixed picture, with Richemont and Brunello Cucinelli benefiting from a wealthier customer base, while peers such as Hugo Boss and Burberry posted disappointing results.

LVMH Moet Hennessy Louis Vuitton, considered a bellwether for the whole sector, posted sales above analysts' forecasts for last year and said it enters 2024 with confidence, prompting a surge in shares among some of its peers.

Salvatore Ferragamo, which is undergoing a transition plan to strengthen the brand, posted a decline in revenue for the year as a whole due to slowing demand. In fact, some analysts noted that companies that were seeking to reinvigorate their brands could face difficulties in the context of a general slowdown in luxury demand.

The French luxury group Hermes is scheduled to publish results for 2023 on Friday.

 

Write to Andrea Figueras at andrea.figueras@wsj.com

 

(END) Dow Jones Newswires

February 08, 2024 03:16 ET (08:16 GMT)

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