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Kering on Wednesday warned profits would almost halve this year after sales at the French luxury goods company’s main brand Gucci plunged amid weak demand in China.
The Paris-listed group said its full-year operating income would drop 46 per cent below that of 2023 to about €2.5bn — less than the €2.85bn anticipated by analysts, according to forecasts compiled by Refinitiv.
It would be the lowest level in eight years, and a sharper fall than at the height of the pandemic in 2020. Kering has had several profit warnings this year in a sector where they are normally scarce.
Rivals such as Louis Vuitton owner LVMH are also suffering from weaker appetite from Chinese shoppers, but Kering is simultaneously struggling to turn around its once-booming Italian brand Gucci, which has just appointed a new chief and is angling for a sleeker aesthetic.
Its sales slide deepened in the third quarter, with like-for-like revenues down 25 per cent from a year earlier, worse than analysts expected.
For the group as a whole, like-for-like sales were down 16 per cent, coming in at €3.8bn. The analysts’ consensus from Bloomberg was for group revenues of €3.96bn, or a 10.9 per cent fall on a like-for-like basis. For Gucci, predictions were €1.75bn, or 20.66 per cent, like-for-like fall.
Gucci accounts for about half the group’s revenues and two-thirds of operating profit, making its revival vital for Kering — although sales at Kering’s Saint Laurent brand also slipped 12 per cent like-for-like, adding to the group’s headaches.
Kering finance chief Armelle Poulou said the “challenging” quarter was marked by slowing demand in Japan and the rest of the Asia-Pacific region — while North America had not proved very dynamic either. Revenues from Chinese customers were down roughly 35 per cent, she said.
“We are keenly aware that we are carrying out a radical transformation at Gucci in an environment that is far from optimal,” she told analysts.
Consumer confidence has taken a knock in China which is experiencing a housing market slump, and government stimulus measures are yet to trickle through.
“It’s a bit early for us to know what would be the effect on the consumption of luxury products,” Poulou said.
LVMH, the world’s largest luxury group which also owns Dior, last week reported a fall in sales sparking concerns that the sector faces prolonged volatility and muted growth. Cosmetics maker L’Oréal also posted disappointing sales growth this week on dipping Chinese demand.
Few brands have been shielded from the downturn in the Chinese economy, with the exception of Birkin-bag maker Hermès whose products are considered the pinnacle of high-end luxury. Hermès reports third-quarter sales on Thursday.
Shares in Kering have fallen more than 40 per cent since the start of the year, contrasting with a 16 per cent drop at LVMH.
Gucci’s poor performance over the past year is putting pressure on chief executive François-Henri Pinault of the controlling Pinault family to fix underlying issues at the brand and show that its once potent earnings machine can deliver.
Envied in recent years for its industry-busting sales growth under previous designer Alessandro Michele, the frenzy for Gucci’s flamboyant designs eventually faded.
Earlier this month Kering appointed Stefano Cantino, a former Vuitton and Prada marketing specialist, as chief executive, promoting him after he joined Gucci in a deputy role in May. From early next year, he will have a mission to boost Gucci’s flagging performance alongside designer Sabato de Sarno.