Luxury goods group Kering warned on Tuesday that its Q1 sales are likely to drop by around 10%, weighed down by star label Gucci, whose sales were down. A worsening performance at Gucci is expected to drag parent company Kering’s comparable sales down by 10% year-on-year in the Q1. The surprise announcement comes a month before Kering is due to publish its full Q1 earnings report.
“This performance primarily reflects a steeper sales drop at Gucci, notably in the Asia-Pacific region. Gucci comparable revenues in the first quarter are expected to be down by nearly 20 per cent year-on-year,” Kering said in a statement.
Gucci sales down
Citing a “steeper sales drop” at Gucci in the Asia-Pacific region, the group said the fashion brand’s comparable quarterly revenue is projected to slide by nearly 20% year-on-year.
Kering in February announced plans to invest in Gucci this year, with margins likely to be dented as a result.
Despite efforts to turnaround Gucci, sales have continued to fall down amid weakened demand, with a knock-on impact on Kering revenue. Kering reported that sales were down 4% in the Q4 of 2023, lagging behind its rivals. For the 2023 full year, Kering’s revenue was down 2% to €19.6 billion.
Gucci relying on new collection
Creative director Sabato De Sarno’s first collection for the brand since his appointment in January 2023 is now rolling out in stores. “Early products, primarily ready-to-wear, from the Ancora collection have been on offer in selected Gucci stores since mid-February. The new collection, whose availability will gradually be ramped up over the coming months, is meeting with highly favorable reception,” the statement from Kering reads.
Initial market reaction will likely be negative, said RBC analyst Piral Dadhania, citing a consensus estimate for a 3% decline over the quarter.
“However, with Gucci in the early stages of its turnaround, and with new product scaling up over the coming months, we believe more time is needed to assess customer reaction.”
Weak demand in Asia
“Weakness in Asia has been a recurring leitmotiv of the recent updates as Chinese consumers have moved from ecstatic excitement about Gucci in the early period of the Alessandro Michele revolution, to a satiated attitude as Alessandro Michele became yesterday’s story,” writes Bernstein analyst Luca Solca. “The jury is out on whether the Chinese will like the Sabato De Sarno quiet luxury.”
“The bad news on Kering is company specific, but is also a good reminder that consumer confidence and discretionary spend in China is soft,” Solca adds.
“The market environment is not easy and you should expect a strong polarization in the performance of the brands,” says Mario Ortelli, managing director of Ortelli & Co. “Brands with good momentum and a loyal affluent client base will continue to perform well, while brands that are undergoing a creative transition and are exposed to more aspirational customers will suffer.”
Kering’s strategy
Kering has laid out a strategy to lure high-net-worth individuals across its brands. Gucci, for instance, has been pursuing its “elevation” strategy with the rollout of Gucci Salons dedicated to very high-end offerings. During its media conference in February, Kering chairman and CEO François-Henri Pinault said: “We are a group that has firepower with aspirational clientele and consequently the more sophisticated, mature segment is less developed than for some competitors who are positioned in timeless [luxury].”
Kering has been focusing on products at the higher end, and sales at Gucci were down 4% in the fourth quarter, year-on-year, compared with a 7% decline in the third quarter.
Kering will release its full Q1 earnings report on April 23.