Paris, France – Luxury giant Kering SA experienced a significant plunge in shares following a warning that sales at its flagship brand, Gucci, dropped by approximately 20% in the first quarter. This decline resulted in a drastic intraday decrease in stock value, the most substantial since 1992, wiping out over €7 billion euros ($7.6 billion) from Kering’s market capitalization.
Gucci’s sales downturn, which is more reliant on China compared to other luxury brands, was primarily due to a larger-than-expected decrease in the Asia-Pacific region. Despite efforts to rejuvenate Gucci, the Italian label – responsible for approximately two-thirds of profits – has faced challenges. This warning is likely to spark speculation on how Kering can reduce its dependence on the brand, which has experienced significant fluctuations over the years in response to shifting consumer preferences.
As controlled by the billionaire Pinault family, Kering faces stiff competition from industry peers like LVMH Moet Hennessy Louis Vuitton SE and Hermes International SCA, especially with the cooling luxury sales climate, particularly in China. The varied brand portfolio of LVMH and the high demand for Hermes handbags have bolstered these companies’ resilience amidst market challenges.
Analysts at Vital Knowledge have expressed concerns over Gucci’s ongoing struggles, attributing them to company-specific issues that have persisted for several quarters. This update underscores broader apprehensions regarding consumer spending and the state of China’s economy.
Overall, Kering anticipates a 10% decline in comparable sales for the period, which includes other prominent labels under its umbrella, such as Yves Saint Laurent and Balenciaga. Gucci’s sales had already faced challenges at the conclusion of last year, as the label grappled with attracting affluent clientele to its high-priced products.
The appointment of Sabato De Sarno as the brand’s new designer aims to breathe new life into Gucci. De Sarno’s debut collection in September showcased a shift towards a more refined and minimalist aesthetic, departing from the flamboyant styles of his predecessor, Alessandro Michele. The initial response to the latest collection’s ready-to-wear offerings has been positive, with plans for expanded availability in the near future.
Despite strategic acquisitions and investments by Kering, including fragrance maker Creed and a stake in Valentino, the company remains heavily reliant on Gucci. The luxury sector, already facing challenges, received a warning signal from Kering’s unexpected announcement, impacting investor sentiment in comparable companies like Burberry Group Plc and Richemont.
With a projection of declining recurring operating income this year, particularly in the first half, Kering emphasizes the importance of vigilance and cost discipline. The luxury landscape continues to evolve, with Gucci’s performance serving as a significant indicator of market trends and consumer preferences.