The French billionaire François-Henri Pinault’s luxury goods company, Kering, has issued a profit warning as demand dries up for its leading brand Gucci in China.
Unlike its rivals in the sector, which have fared better, the Paris-based company said like-for-like sales in the first quarter would drop by 10% year on year, while sales at Gucci were expected to fall by nearly 20%.
“This performance primarily reflects a steeper sales drop at Gucci, notably in the Asia-Pacific region,” said Kering, whose other luxury names include Saint Laurent, Balenciaga and Alexander McQueen. Kering shares fell 13.3% on on Wednesday after the profit warning.
Gucci accounts for about half of its parent firm’s revenues and two-thirds of its operating profit. The Italian fashion house is in the middle of a shake-up under new management and a new creative director, Sabato de Sarno.
The first items from de Sarno’s Ancora collection have been in some Gucci stores since mid-February, and Kering said they were “meeting with highly favourable reception” and “availability will gradually be ramped up over the coming months”.
Analysts at Jefferies, led by James Grzinic, said: “Kering’s warning largely reflects a sharp deterioration of Gucci’s resonance in Asia Pacific, and China in particular. This comes at a time when the transition to the De Sarno signature remains in its early stages. While a mixed Chinese yuan backdrop may have added an extra challenge, the news suggests a deeper trough.”
The Jefferies analysts said Gucci’s more classic, legacy products, such as leather handbags, failed to resonate with consumers, while the encouraging first reception for the first De Sarno product was “dwarfed by that tough headwind”. The new lines were likely to account for less than 5% of the total current offer in Gucci stores.
De Sarno unveiled clean-cut suits and chunky knitwear at his first menswear collection at Milan fashion week in January, heralding an era of pragmatism after nearly a decade of maximalism under his predecessor, Alessandro Michele.
Under Michele, Gucci has been popular with younger, so-called aspirational shoppers who are more vulnerable to economic pressures, unlike older, more affluent consumers.
The Bernstein analyst Luca Solca said the jury was still out on whether the Chinese would take to the “Sabato de Sarno quiet luxury”.
Kering’s other brands – it also owns Bottega Veneta, Boucheron and Brioni – have also been hit by lower demand. In contrast, the larger rival luxury groups LVMH, which owns Louis Vuitton, Dior and Tiffany, and the Birkin bag maker Hermès posted double-digit sales growth between October and December.
The global luxury market has slowed with consumer spending in China lagging behind the rest of the economy since the Covid outbreak in early 2020, amid a property crisis that has caused developers to declare bankruptcy or default on their debts. About 70% of Chinese household wealth is invested in property.
