Gucci Owner Kering's Earnings Hit by Turnaround, China Woes — Update

By Andrea Figueras

Gucci owner Kering expects earnings to continue falling in the remainder of the year after both profit and revenue were hit in the first six months, with its flagship brand pushing ahead with a turnaround at a tough time for the luxury industry.

The French luxury-goods group--home to other brands such as Balenciaga and Yves Saint Laurent--said Wednesday that it anticipates recurring operating income in the second half to be down by around 30% compared with the year-earlier period, reflecting uncertain demand trends for luxury goods in the coming months and a slowdown during the first half.

For Kering, the downturn comes in the midst of its efforts to revamp its biggest brand, Gucci, in pursuit of less seasonal designs to target higher-spending, aesthetically conservative customers.

The company booked revenue of 4.5 billion euros ($4.88 billion) for the second quarter, down 11% compared with the same period last year. The result fell short of consensus expectations of EUR4.6 billion, according to consensus estimates provided by Visible Alpha.

The result was dragged by a 25% drop in Asia Pacific, which excludes Japan, a steeper fall than the 19% it reported for the region in the previous quarter.

Kering is the latest luxury company to report sluggish demand in China--the industry's longtime growth engine--as consumers there cut back on spending or shift it to Japan drawn by a weaker yen. The company posted a 27% revenue increase in Japan for the second quarter.

French luxury behemoth LVMH Moet Hennessy Louis Vuitton reported weaker-than-expected results for the first half on Tuesday, confirming investors' worries about stalling demand in China and prompting share drops across the industry. Cartier owner Richemont, Burberry Group and Swatch Group all reported sharp falls in sales in China last week.

"In a challenging market environment, which adds pressure on our top line and profitability, we are working assiduously to create the conditions for a return to growth," Kering Chairman and Chief Executive Francois-Henri Pinault said.

Gucci made second-quarter revenue of EUR2.01 billion, down 20% on year in reported terms, while analysts had forecast EUR2.08 billion, according to Visible Alpha.

Second-quarter trends were broadly in line with those of the previous three months, including a continuing marked decrease in the Asia-Pacific region. "Gucci's new offering, rolled out in stores in line with plans, is well received, while sales of carryovers remained lower," the company said.

Kering's bottom line was hit as well. The group's recurring operating profit tumbled 42% during the first half to EUR1.58 billion. In April, Kering warned the figure would drop between 40% and 45% in the first half due to continued investments in its fashion houses.

Write to Andrea Figueras at andrea.figueras@wsj.com

(END) Dow Jones Newswires

July 24, 2024 12:56 ET (16:56 GMT)

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