On September 27, 2023, the new Gucci store on Bond Street, London, England.
Mike Camp | In Pictures | Getty Images
French luxury goods group Kering Group warned that it expects profits to fall sharply in the first half of the year due to weakening demand for its Gucci brand. Kering Group’s share price opened down more than 9% on Wednesday.
The group said on Tuesday it expected first-half operating income to fall 40% to 45% compared with the same period in 2023, as it struggles to maintain share in an increasingly discerning luxury market.
The stock narrowed its losses slightly, falling 7.8% as of 9:15 a.m. London time.
François-Henri Pinault, Kering’s chairman and chief executive, said on Tuesday that the warning came after a “significant deterioration” in the company’s first-quarter results.
“While we expect a challenging start to the year, subdued market conditions, particularly in China, and the strategic repositioning of some brands, led by Gucci, have exacerbated downward pressure on our revenue,” Pinault said in a statement.
“Given the revenue decline and our strong determination to continue to selectively invest in the long-term appeal and distinctiveness of our brands, we now expect operating profit to be significantly lower in the first half of the year.”
Group sales fell to 4.5 billion euros in the first quarter, a 10% annual decrease.
The Paris-based company flagged the expected decline in a rare profit warning last month, saying the losses would be driven by lower Gucci sales, particularly in Asia.
The decline of Gucci
In the first quarter, Gucci’s sales fell by 18% year-on-year, slightly lower than the previously forecast 20% decline.
Slumping performance sets the fashion house apart from other luxury brands LVMH and Hermès have remained resilient amid economic headwinds.
Gucci, once a darling of Kering, posted strong results in 2021, driven by an early boom in the Covid-19 pandemic era. Luxury fashion brands have since struggled to retain their market share as even wealthy consumers tighten their belts and turn to more “quiet luxury” brands amid rising inflation.
Kering Group reported that down 6% Revenue also fell in the fourth quarter of 2023, with sales at all other major brands including Yves Saint Laurent also falling. Specifically, Gucci sales fell 4% compared with the same period last year.
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