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Shares of French luxury group Kering sunk more than 9% at open on Wednesday, after the company warned that it expects a sharp downturn in first-half profits as a result of waning demand for its Gucci brand.
The group on Tuesday said that it anticipates a decline of 40% to 45% in first-half operating income, compared to the same period in 2023, as it struggles to retain share of the pocket in the increasingly discerning luxury market.
The stock pared losses slightly to trade down by 7.8% by 9:15 a.m. London time.
Kering chairman and CEO François-Henri Pinault on Tuesday said the warning comes after the company’s performance “worsened considerably” in the first quarter.
“While we had anticipated a challenging start to the year, sluggish market conditions, notably in China, and the strategic repositioning of certain of our Houses, starting with Gucci, exacerbated downward pressures on our topline,” Pinault said in a statement.
“In view of this revenue decline, together with our firm determination to continue investing selectively in the long-term appeal and distinctiveness of our brands, we now expect to deliver sharply lower operating profit in the first half of this year.”
Group sales fell to 4.5 billion euros in the first quarter, down 10% on a comparable basis.
The Paris-based company flagged the anticipated downturn in a rare profit warning last month, noting that the shortfall would be led by declining Gucci sales, particularly in Asia.
Gucci’s decline
First-quarter Gucci sales fell 18% on a comparable basis, slightly less than the 20% dip that had been projected previously.
The downtick sets the fashion house apart from other luxury lines LVMH and Hermes, which have stayed resilient in the face of economic headwinds.
Gucci was once a darling of the Kering group, delivering strong results in 2021 that were driven by an early Covid-19 pandemic-era boom. The lavish fashion line has since struggled to retain its share of the market, as even affluent consumers have tightened their belts amid higher inflation and shifted toward more ”quiet luxury” brands.
Kering reported a 6% drop in fourth-quarter 2023 revenues, with sales also falling across all of its other major brands including Yves Saint Laurent. Gucci sales specifically were down 4% on a comparable basis.