(Bloomberg) — Kering SA warned that sales at Gucci will plunge about 20% in the first quarter due to a steeper-than-expected decline in the Asia-Pacific region, widening the gap between the French luxury company and its main rivals.
Kering’s American depositary receipts fell 10% after the company published the release late Tuesday. The shares have dropped 22% over the past year as Kering tried to revitalize Gucci, the Italian label that accounts for about two-thirds of profit, without success.
Controlled by the billionaire Pinault family, Kering has struggled to keep up with rivals like LVMH and Hermes International as luxury sales have come off the boil over the past year, especially in China. LVMH’s broader brand portfolio and Hermes’s long waiting lists for handbags have made those companies more resilient.
“Gucci has been encountering some company-specific problems for a few quarters, but this update will raise further worries about the state of consumer spending and China’s economy,” analysts at Vital Knowledge wrote in a note to clients.
Read More: China’s Tepid Rebound Has Left Luxury Shops Relying on US Demand
Overall, comparable sales at Kering, which also owns labels like Balenciaga and Saint Laurent, will be down about 10% in the period, the company said.
New Designer
Gucci sales fell in the final months of last year as the label struggled to lure more wealthy shoppers to its pricey Double G belts and Princetown slippers. A year ago, Sabato De Sarno was named as the brand’s new designer.
“The jury is out on whether the Chinese will like the Sabato De Sarno quiet luxury,” Luca Solca and colleagues at Bernstein said.
Early ready-to wear products from the latest Ancora collection are meeting with “highly favorable reception,” according to Kering. Their availability will increase in coming months, the company said.
With a recovery in China slow to materialize, luxury companies have grown more dependent on the US. That’s bad news for Gucci, which is particularly exposed to the Asian market. The company plans to release quarterly results on April 23.
–With assistance from Tonya Garcia.
(Updates with analyst comments in fourth, seventh paragraphs)
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