Luxury stocks tumble as Kering warns of Asian profit decline

The stock of the French luxury conglomerate Kering experienced a significant 14% decline on Tuesday, following the company’s cautionary announcement regarding an anticipated 20% year-on-year drop in Gucci sales for the first quarter, amidst a downturn in transactions especially in Asia Pacific.

Luxury store Gucci part of Kering

The unusual profit warning projects a 10% decrease in overall group revenues during the initial three months of 2024 on a comparable basis. This places the fashion house in a distinct position from other luxury brands like LVMH and Hermes, which have demonstrated resilience amid economic challenges.

Kering plummeted to the bottom of the Stoxx 600 index following a delayed opening, exerting downward pressure on other European luxury brands. In early trading, shares of LVMH, Christian Dior, and Hermes all experienced more than 2% declines, while Burberry saw a substantial drop of 5.7% by 8:30 a.m. London time, Kering had slumped by 14.3%.

Kering stated in a release, “Amidst a first half anticipated to pose challenges, current market patterns have prompted the Group to project a decline of approximately 10% in its consolidated revenue for the first quarter of 2024 on a comparable basis compared to the same period last year.”

“The notable downturn in performance primarily stems from a sharper decline in sales at Gucci, particularly evident in the Asia-Pacific region. Comparable revenues for Gucci in the first quarter are anticipated to decrease by nearly 20% compared to the previous year.”

The deceleration is projected to originate primarily from Asia, with a particular emphasis on China, whose economy has been facing challenges.

Claudia Panseri, UBS’s chief investment officer for France, remarked that the warning signified ongoing challenges amidst broader macroeconomic pressures in China.

“China presents a somewhat distinct narrative,” Panseri told CNBC, drawing comparisons between the country and the U.S. and European markets.

“We require additional time to observe an uptick in consumer spending. Stabilization of the real estate market is also necessary. Nevertheless, the recovery of global travel has a positive aspect, which should contribute positively to the narrative of luxury goods.”

Panseri stated her optimistic outlook on luxury goods, emphasising that the sector constitutes a substantial portion of the bank’s exposure.

“We may need to exercise more selectivity, given that valuations are not inexpensive. However, the overarching narrative remains intact,” she added.

luxury boutique mentioned in Kering

Gucci Struggles, Unravelling Challenges in the Luxury Market

Formerly a flagship within the Kering group, Gucci boasted robust performances in 2021, fuelled by an initial surge during the pandemic. However, the prestigious fashion label has encountered challenges in maintaining its market share, as even affluent consumers have become more cautious due to rising inflation, gravitating towards brands embodying a sense of “quiet luxury.”

In the previous month, Kering disclosed a 6% decrease in fourth-quarter 2023 revenues, accompanied by declines in sales across its prominent brands, such as Yves Saint Laurent, Balenciaga, and Alexander McQueen. Gucci experienced a quarter-on-quarter sales decrease of 4%.

CEO François-Henri Pinault stated at the time that the group would persist in investing in its brands, including Gucci, even if it meant attaining lower profit margins, as reported by Reuters.

In 2023, Kering implemented a restructuring of Gucci’s senior leadership as a component of its broader overhaul strategy. This initiative saw the appointment of Jean-François Palus as CEO and Sabato De Sarno as its creative director.

In its statement on Tuesday, Kering reported that De Sarno’s latest Ancora collection, launched in mid-February, has received a “highly favourable reception.”

However, According to Jefferies analysts, classic, heritage Gucci products like leather handbags didn’t strike a chord with consumers. They noted that challenging market conditions overshadowed the positive initial reception for the De Sarno product. These new lines were expected to represent less than 5% of Gucci’s current product offerings in stores.

Kering is scheduled to announce its first-quarter 2024 revenue figures on April 23.

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