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French luxury group Kering said it expected sharply lower profits in the first half of 2024 compared with the previous year after sales at its top brand Gucci sank.
The Paris-based group said that it expected a decline of between 40 to 45 per cent in first half operating income compared with 2023 as it released first-quarter results that showed group sales had declined 10 per cent on a like-for-like basis to €4.5bn.
Analysts had expected first-half operating profit to shrink by 24-30 per cent, according to estimates compiled by Bloomberg.
Last month Kering issued a profit warning alerting investors to its deteriorating sales, a rarity in the luxury sector where solid growth and margin gains have been the norm among rivals including LVMH and Hermès. While the global luxury market has been slowing for the past year after a multiyear pandemic boom, other groups have fared better in the transition.
“Kering’s performance worsened considerably in the first quarter,” billionaire chair François-Henri Pinault said. “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 top line.”
“All of us are working tirelessly to see Kering through the current challenges and rebuild a solid platform for enduring growth,” he said.
Sales at Gucci, which accounts for half of group sales and two-thirds of profits, declined 18 per cent on a comparable basis as its sales in the key Chinese market flagged.
The brand is in the middle of a turnaround under new leadership and creative direction. Product from new designer Sabato de Sarno’s first collections have only recently started arriving in stores, and has met with positive reception from clients so far, Kering has said.
A more complete selection of the new designs is expected to be in stores by the summer, with about 40 per cent of product expected to be from de Sarno’s collections by the third or fourth quarters, the company said. The brand is still working to clear out old inventory.
Kering has said it will continue to invest in the long term elevation of its brands, with an emphasis on Gucci. However working to position Gucci in the same category as top-tier luxury brands such as Hermès and Chanel is complicated while changing the aesthetic, analysts say.
“Changing the creative vision and elevating price points at the same time is a harder job in the current mixed external environment for the sector, thus requiring a longer timeframe for top line benefits to be visible,” said Rogerio Fujimori, analyst at Stifel. He added that he sees “Gucci’s turnaround more likely as a potential 2025 story if we see green shoots for Sabato’s new products” in the second half of the year.
Kering said on Tuesday that it expected sales to improve in the second half of the year as the year-on-year basis of comparison eases and the Gucci rebound gains momentum. However, it did not expect the performance at Gucci to improve much in the second quarter.
Sales at Yves Saint Laurent, its second biggest label, fell 6 per cent on a like-for-like basis in first three months of the year. Other, smaller houses including Balenciaga and Alexander McQueen also collectively posted a 6 per cent fall in sales. The only bright spots were Italian fashion house Bottega Veneta and the group’s eyewear divisions, with both divisions posting sales growth.
Kering shares have fallen more than 40 per cent in the past year for a market value of €43bn. LVMH has declined 11 per cent and Hermès has gained 17 per cent over the same period.