Kering Shares Plunge 10% as Gucci Profits Decline Amid Luxury Market Slowdown

Kering SA shares fell 10% following a warning that profits could drop by 30% due to declining luxury demand and Gucci's underperformance. Gucci's revenue plummeted 19% in the second quarter, significantly exceeding analysts' expectations.

Kering Shares Plummet 10% as Gucci Faces Profit Warnings and Weak Luxury Demand in China

Kering SA shares experienced a significant decline following a warning from Gucci's proprietor that profits would decline in the second half of the year due to the cooling of luxury demand and the failure of the turnaround effort at its most prominent brand.

In a recent report by Fortune, Kering, a Paris-based company, announced on July 24 that recurring operating income, a critical profit indicator, may decline by approximately 30% compared to the previous year. Gucci's comparable revenue fell by 19% in the second quarter, surpassing the analysts' anticipated decline.

On July 25 morning in Paris, Kering's shares experienced a decline of up to 10%. The company's market capitalization has decreased by nearly half in the past year to €34 billion ($37 billion), approximately one-tenth the size of its competitor, LVMH.

Kering is grappling with an industry downturn as it endeavors to revitalize Gucci, the Italian brand that generates approximately two-thirds of its revenue. Before the deflation of the luxury bubble during the pandemic last year, the company was already behind LVMH and Hermes International. In April, the proprietor of Gucci issued a profit warning due to weak demand, particularly in China.

New Gucci Designs Boost Revenue Amid Declining Demand for Classic Leather Goods, Reports Kering CFO

Gucci appointed Sabato de Sarno, a new designer, last year. His designs are currently being disseminated throughout the company's store network. Chief Financial Officer Armelle Poulou stated that the new creations account for approximately one-quarter of the label's total revenue and are receiving a favorable response. However, she noted that the demand for permanent leather products, including the Marmont and Ophidia purses, is declining.

Kering, controlled by the Pinault family and managed by the family scion François-Henri Pinault, also owns brands such as Balenciaga and Yves Saint Laurent. However, Gucci continues to be significantly dependent on it. Bottega Veneta was the sole significant brand to experience growth in the second quarter. In the first half, Kering's recurring operating income decreased by 42% to €1.58 billion ($1.7 billion).

Even brands that have previously demonstrated resilience are experiencing an impact as luxury groups contend with diminished demand for expensive purses and apparel. The results of LVMH's largest division, which encompasses Christian Dior and Louis Vuitton, were below analysts' expectations on July 23.

“There’s a lot of uncertainty right now” in luxury, Poulou said on the call. “We notice in all regions a fragile consumer confidence, and we know it can impact demand for luxury products.”