Kering, the luxury goods conglomerate owned by French billionaire François-Henri Pinault, has issued a profit warning following a decline in demand for its flagship brand, Gucci, in China.
In contrast to its competitors in the industry, Kering stated that like-for-like sales for the first quarter are anticipated to decrease by 10% year-on-year, with Gucci sales expected to drop by nearly 20%.
“This decline primarily reflects a significant decrease in sales at Gucci, particularly in the Asia-Pacific region,” remarked Kering, which also oversees luxury brands such as Saint Laurent, Balenciaga, and Alexander McQueen. Following the profit warning, Kering shares experienced a 13.3% decrease on Wednesday.
Gucci contributes approximately half of its parent company’s revenues and two-thirds of its operating profit. The Italian fashion house is undergoing a restructuring under new management and a new creative director, Sabato de Sarno.
De Sarno’s initial items from the Ancora collection have been available in select Gucci stores since mid-February, with Kering noting they have received positive feedback and will gradually become more widely available in the coming months.
Analysts at Jefferies, led by James Grzinic, suggested that Kering’s warning largely reflects a decline in Gucci’s appeal in the Asia Pacific region, particularly in China. They noted that while the transition to the De Sarno signature is underway, it is still in its early stages.
Under De Sarno’s leadership, Gucci unveiled a more pragmatic approach to design, moving away from the maximalist style favored by his predecessor, Alessandro Michele. However, the shift in design direction has yet to fully resonate with consumers, particularly in China.
Kering’s other luxury brands, including Bottega Veneta, Boucheron, and Brioni, have also experienced decreased demand. In contrast, larger luxury conglomerates such as LVMH and Hermès have reported double-digit sales growth.
The global luxury market has faced challenges, with consumer spending in China trailing behind the rest of the economy since the onset of the COVID-19 pandemic in early 2020. Additionally, a property crisis in China has impacted consumer confidence, as a significant portion of household wealth in the country is tied to property investments.
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