Kering stock dives as Gucci forecasts sales to skid by 20%

By Louis Goss

Luxury fashion house Kering has said it expects a slowdown in Asia will see sales from its top brand Gucci drop 20% in the first quarter of 2024, in a rare profit warning that caused its share price to dive 15% on Wednesday.

In its profit warning, Kering said it expects the 20% drop in Gucci's sales to drive a 10% drop in firm-wide revenues in the first-quarter of 2024, as the Parisian company said that based on "current trends" it expects the first half of the year will be "challenging."

Kering shares (FR:KER) fell 15% on Wednesday having lost 35% of their value over the previous 12 months. Shares in rival luxury goods sellers also fell, with Burberry (UK:BRBY) stock dropping 4% and shares in LVMH Moet Hennessy Louis Vuitton (FR:MC) dropping 3%.

Analysts at Citi, led by Thomas Chauvet, called Kering's profit warning a "worrying signal for the luxury goods sector," as they said the warning will be bad news for Kering's equity story in 2024 in signaling a slower-than-expected brand turnaround at Gucci.

The fashion house said its sales forecast "primarily reflects a steeper sales drop at Gucci, notably in the Asia-Pacific region." The Asia-Pacific region accounted for 35% of Kering's sales in 2023.

China, which is estimated to account for around one-third of Gucci's sales, has seen its economy slowdown in recent months, following a crisis in the country's property market that has hit consumer confidence.

Kering, which also owns top brands including Yves Saint Laurent and Balenciaga, previously reported a 4% drop in its full-year revenue for 2023, to EUR19.6 billion, caused by a drop in its sales in Western Europe and North America due to middle class customers cutting back spending.

The 2023 sales slowdown saw Kering's net income drop 17% year-on-year. Kering's underwhelming 2023 results sit in contrast to results posted by its major rivals, LVMH and Hermes, which have both seen their sales surge.

Kering previously said investments in its fashion houses, including in its efforts to revamp Gucci under new creative director Sabato de Sarno, would impact its margins in 2024.

In 2023, Kering said its results suffered most severely due to a 22% drop in sales in its North America segment, to EUR4.5 billion, due to lower spending from "aspirational customers" whose finances were hit by soaring inflation and higher interest rates.

In its largest Asia-Pacific segment, which accounts for 35% of overall sales, Kering's results were buoyed by higher sales in China, which offset slowdowns in South Korea and South East Asia, leading to a 10% uptick in revenues from the region as a whole to EUR6.9 billion.

Kering's Japanese sales were also boosted by an increase in tourism and the relative weakness of the Japanese yen, which saw sales in the country jump 24% to EUR1.4 billion.

In Western Europe, Kering's sales fell 4% throughout 2023, as the fashion house itself cut supplies to wholesalers in line with plans to make its products more exclusive and capture a larger share of the premium market.

-Louis Goss

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03-20-24 0847ET

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