PARIS – Kering expects a drop of up to 45 percent in first-half operating profit after revenues fell in the first quarter as its struggles to reboot its star brand Gucci.
The French luxury group sent shudders through the market when it issued a rare profit warning last month, signaling a tougher-than-expected turnaround for the maker of Jackie handbags and horsebit loafers, and causing its shares to plunge 12 percent the following day.
The company’s first-quarter results, published on Tuesday, showed stablemates including Saint Laurent also posted further sales declines in the first quarter.
Organic revenues at Gucci, which is undergoing a revamp under chief executive officer Jean-François Palus and creative director Sabato De Sarno, were down 18 percent, above the Bloomberg-compiled revised market estimate of minus 19.4 percent.
Group revenues fell 11 percent to 4.5 billion euros in the three months to March 31, representing a decline of 10 percent in comparable terms, as flagged by the company.
Analyst estimates had called for a 10.2 percent drop in like-for-like sales at Kering amid a wider luxury slowdown and geopolitical uncertainty.
“Kering’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,” Kering chairman and CEO François-Henri Pinault said in a statement.
“Taking into account the deterioration of its revenue trends, the group now anticipates a decline of 40 to 45 percent in first-half 2024 recurring operating income compared to the first half of 2023,” Kering said.
Saint Laurent RTW Fall 2024.
Dominique Maitre/WWD
Organic sales at Saint Laurent were down 6 percent in the first quarter, Bottega Veneta gained 2 percent, and the “other houses” division – which groups brands including Balenciaga, Alexander McQueen and Boucheron – posted a 6 percent drop.
Kering eyewear and corporate, which includes the group’s fledgling beauty division, recorded a 9 percent increase in comparable sales.
By comparison, organic sales at LVMH Moët Hennessy Louis Vuitton’s key fashion and leather goods division rose 2 percent year-over-year in the first quarter, reflecting the resilience of its star brands Louis Vuitton and Dior.
Kering had warned its profits would take a hit in the first half as it ramps up spending on advertising and events to support the Gucci turnaround and rev up the ailing Balenciaga and Alexander McQueen labels.
Pinault has attempted to limit uncertainty around the direction of the brand by announcing earlier this year that Palus would remain in place, instead of serving in a transitional capacity as initially planned.
Gucci has also appointed a number of senior executives, most recently bringing on former Louis Vuitton communications executive Stefano Cantino as deputy CEO, a new role in which he will share with Palus the responsibility to define and implement the brand strategy.
Sabato De Sarno
Clotilde Petrosino/WWD
But some analysts believe Gucci requires a more profound shakeup.
“Despite Kering’s insistence that Jean-François Palus is the right interim CEO for Gucci, the market does not agree,” RBC Capital markets analyst Piral Dadhania and his colleagues wrote in a research note in late March, before Cantino’s appointment was made public.
They also called for more drastic action to clear old merchandise designed by former creative director Alessandro Michele, which they said was selling through worse than expected.
As a result of the prolonged handover period, Gucci’s ranking in the Lyst index of fashion’s hottest brands tumbled to number 11 in the fourth quarter of 2023 from number two a year earlier.
“Whilst management were previously hoping for a more organic transition at Gucci with a view to protect the revenue base, we believe current performance warrants an approach that throws caution to the wind,” RBC said.
The Kering results come on the heels of figures from Valentino, in which Kering holds a 30 percent stake, showing revenues fell 3 percent in 2023 amid a “challenging global context for the luxury industry.”
Hermès International is the next big luxury player scheduled to report first-quarter results, on Thursday.