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Paris — French luxury group Kering warned on Wednesday its 2024 operating income would almost halve to its lowest in years as weak demand in China deepened the struggles of Gucci, its main label.
The group, which also owns fashion brands Saint Laurent, Balenciaga and Bottega Veneta, said third-quarter revenue fell 16% €3.79bn, worse than an 11% decline according to a consensus estimate in a Barclays note.
Kering said its 2024 recurring operating income could be about €2.5bn compared with €4.75bn a year earlier after a slowdown in the quarter and “major uncertainties” likely to weigh on demand in coming months.
In the first half it had forecast a 30% decline in its second-half recurring income, which would have resulted in an annual income of €2.97bn.
Kering’s warning comes as the luxury sector generally suffers a slowdown. Bellwether LVMH missed expectations last week and flagged a drop in Chinese consumer confidence to Covid-era lows, with a deterioration in demand for high-end fashion over the quarter.
“Overall, we were expecting a challenging third-quarter print, and some level of reduction in guidance for full-year earnings before interest and tax. However the magnitude of earnings erosion in the short term is worse than expected,” analysts at RBC said in a note.
“It raises questions about earnings recoverability next year where we are likely to see further downgrades,” they added.
Kering said demand weakened from the second quarter, particularly in Asia-Pacific, where sales fell 30%, and in Japan, which suffered a “significant slowdown”.
Investors have been nervous about the industry since a post-pandemic spending spree lost momentum last year. Chinese appetite for high-end fashion has been the key source of concern, sending luxury companies’ shares on a roller-coaster.
China’s property crisis has curbed shoppers’ enthusiasm, while government stimulus measures announced recently have failed so far to rekindle demand for high-end fashion.
Gloom
Sales at Gucci, which accounts for half of annual group sales and two-thirds of profit, continued to slide and were down 25% in the quarter, compared with analysts’ consensus expectations for a 21% decline.
“We are executing a far-reaching transformation of the group, and at Gucci in particular, at a time when the whole luxury sector faces unfavourable market conditions,” Kering chair and CEO Francois Henri Pinault said in a statement.
Kering has been managing a broad overhaul of the century-old Italian fashion house, rebuilding executive teams and introducing a new streamlined design style under the artistic direction of Sabato de Sarno, while pushing the products upmarket.
The overhaul of Gucci’s leather goods category, with the introduction of a host of new products late in the quarter, was well under way, Pinault said.
Sales of new Gucci products accounted for a third of sales over the quarter, but that wasn’t enough to compensate for the performance of older products, including the leather goods category, Kering CFO Armelle Poulou said on a media call.
Kering shares are down 42% since the beginning of the year, compared with a 16% decline at larger rival LVMH. Burberry, another luxury label undergoing a design overhaul, is down almost 50%.
Earlier this month, Kering named Stefano Cantino as Gucci CEO, effective from January, replacing longtime Kering executive Jean-Francois Palus who held the role for an interim period since last year.
Reuters
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