European Luxury Stocks Fall After Gucci Owner Kering Warns of Sales Drop

By Andrea Figueras

Shares in European luxury stocks fell after Kering warned that first-quarter sales were expected to decline due to a steep sales drop at Gucci, raising concerns about demand in Asia-Pacific.

At 0829 GMT on Wednesday, shares in Kering traded 14% lower at EUR365.15, shedding about 7.5 billion euros ($8.15 billion) in market value. Peers LVMH Moet Hennessy Louis Vuitton, Richemont, Swatch Group, and Salvatore Ferragamo fell 2% or more, while Hermes International, Moncler and Brunello Cucinelli traded lower as well.

Kering estimates sales for the first three months of 2024 to fall by around 10% compared with the prior-year period, when the company booked revenue of EUR5.01 billion, the French luxury giant said late Tuesday.

As for the group's core brand Gucci, sales are expected to decline by nearly 20% on year.

This is a rather worrying signal for the luxury goods sector, Citi analysts wrote in a note to clients.

Kering is seeking to reinvigorate Gucci in an bid to catch up to luxury rivals. In January 2023, Sabato de Sarno was named as its creative chief, but some analysts pointed out that the effort is still at an early stage and that signs of improvement will take time.

The company's new warning comes at a time when a few peers in the luxury sector are pointing to a constructive start to demand in 2024, Jefferies analysts said in a research note. Birkin bag maker Hermes said it was confident for 2024 after reporting a surge in fourth-quarter sales, helped by its exposure to wealthy consumers. Richemont and Brunello Cucinelli also benefited from a wealthier customer base.

The first-quarter business update, which is due on April 23, is expected to show the group's commercial strategy in Gucci in response to this deteriorating momentum, Jefferies said.

In February, Kering anticipated investments in its houses to put pressure on its earnings, particularly in the first half.

Planned investments and the resulting expected decline in profits had already led to downgrades to consensus expectations, and Tuesday's sales warning could prompt further cuts to expectations, Citi analysts said.

The company's most recent warning largely reflects a sharp deterioration of Gucci in Asia-Pacific and China in particular, Jefferies analysts said.

The luxury sector is grappling with a slower-than-expected recovery in China--one of the industry's largest markets--partly due to domestic economic woes.

"Weakness in Asia has been a recurring leitmotiv of the recent updates," Bernstein analysts said in a note. "The bad news on Kering are company specific, but are also a good reminder that consumer confidence and discretionary spend in China is soft."

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

(END) Dow Jones Newswires

March 20, 2024 04:59 ET (08:59 GMT)

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