Kering shares fall even further as Gucci owner posts 20% drop in sales

By Louis Goss

Kering shares tumbled on Thursday after the Gucci owner reported a sharp drop in second-quarter sales and said it could see a 30% slump in firm-wide profits in the second half of 2024.

The Paris headquartered company, which owns brands including Balenciaga and Yves Saint Laurent, posted an 11% drop in its revenue in the second quarter of 2024, to EUR4.51 billion ($4.9 billion), on the back of a 20% drop in sales from Gucci, to EUR2 billion.

The slowdown in sales saw Kering fall short of expectations, with six analysts polled by FactSet having previously predicted the luxury firm would generate revenue worth EUR4.6 billion.

The slowdown in Kering's sales comes as the French company has struggled to turn around the performance of its flagship brand Gucci over the previous year in the face of a wider downturn in the luxury industry that is now hitting even the most high-end brands.

Kering (FR:KER) shares, listed on the Euronext Paris stock exchange, fell 9% on Thursday having lost 30% of their value in the year-to-date on the back of a sharp drop in March sparked by the Gucci-owner issuing a profit warning.

The luxury firm's share price also fell by 6% on Wednesday on a sector-wide drop driven by news that luxury giant LVMH Moët Hennessy Louis Vuitton (FR:MC) had seen a slowdown in its own second-quarter sales.

Kering, which was started as a timber trading business in 1962 before pivoting into the luxury sector, saw its sales hit by sharp drops in its Europe, North America and China-dominated Asia Pacific segments which were partially offset by higher sales in Japan.

Kering's biggest brand Gucci saw its second-quarter sales fall most sharply, in posting a 20% drop to EUR2 billion, as the luxury firm's second-biggest selling brand, Yves Saint Laurent, also saw its sales fall 9%, to EUR701 million.

This led to a sharp 42% drop in firm-wide recurring operating income, to EUR1.58 billion, in the first half of 2024, driven by plunging profits across all segments of its business, including at Gucci, which fell 44%, and Yves Saint Laurent, which fell 38%.

Kering said it now expects its recurring operating income will be 30% lower in the second half of 2024, compared to the equivalent period in 2023, as a result of the "ongoing economic and geopolitical uncertainty."

"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 CEO François-Henri Pinault said in a statement.

Kering had previously sought to turnaround its performance by revamping its flagship Gucci brand under the creative leadership of new creative director Sabato De Sarno who joined the brand in 2023.

UBS analysts, led by Zuzanna Pusz, downgraded Kering from a buy to a neutral rating as they said that the luxury firm is "on the right path but the recovery will take longer than we had expected."

"We had the expectation that Gucci's turnaround could gain momentum in H2 2024 when the new collections of Sabato de Sarno reach a higher penetration of stores," the UBS analysts said. "We now believe that the more challenging trends in the sector may delay the time Gucci returns to growth."

Analysts at Third Bridge led by Yanmei Tang said that while De Sarno's collections appear to be popular among Chinese consumers who drive much of Kering's revenue, Gucci had "lost sales in entry-price categories such as small leather goods, shoes, and belts."

"Gucci's heavy reliance on aspirational Gen Z consumers in China, unlike Louis Vuitton and Hermès's broader high-net-wort customer bases, contributed to its sales decline," the Third Bridge analysts added.

-Louis Goss

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07-25-24 0452ET

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