Kering warned that sales at Gucci have plunged about 20% in the first quarter due to a steeper-than-expected decline in the Asia-Pacific region, widening the gap between the French luxury company and its stronger rivals.
Kering shares fell 13 per cent in Paris after the company’s unscheduled update. The fashion group has been trying to revitalise Gucci, the Italian label that accounts for about two-thirds of profit, without success.
Controlled by the billionaire Pinault family, Kering has struggled to keep up with rivals like LVMH Moet Hennessy Louis Vuitton and Hermes as luxury sales have come off the boil over the past year, especially in China. LVMH’s broader brand portfolio and Hermes’s long waiting lists for handbags have made those companies more resilient.
“Gucci has been encountering some company-specific problems for a few quarters, but this update will raise further worries about the state of consumer spending and China’s economy,” analysts at Vital Knowledge wrote in a note to clients.
Overall, comparable sales at Kering, which also owns labels like Yves Saint Laurent and Balenciaga, will be down about 10% for the period, the company said.
Gucci sales fell in the final months of last year as the label struggled to lure more wealthy shoppers to its pricey Double G belts and Princetown slippers. Sabato De Sarno was named as the brand’s new designer last year and he unveiled his first collection in September in Milan, which showed a more elegant and minimalistic aesthetic compared to the flamboyant looks of his predecessor Alessandro Michele.
“The jury is out on whether the Chinese will like the Sabato De Sarno quiet luxury,” Luca Solca and colleagues at Bernstein said, referring to the current trend for more understated looks.
Early ready-to wear products from the latest Ancora collection are meeting with a “highly favourable reception,” according to Kering. Their availability will increase in coming months, the company said.
Kering’s unexpected announcement is a “rather worrying signal for the luxury goods sector,” wrote Thomas Chauvet, an analyst at Citigroup, adding that its biggest label is suffering from “being in the midst of a major design and management transition, with weak performance of carry over items and limited penetration from early products,” of the new collection, which had been delivered to only a third of the store network as of mid-February.
Though Kering has been struggling with issues specific to Gucci, investors in some other fashion companies were spooked by its warning. Shares of Prada tumbled as much as 11 per cent in Hong Kong.
With a recovery in China slow to materialise, luxury companies have grown more dependent on the US. That’s bad news for Gucci, which is particularly exposed to the Asian market. The company plans to release quarterly revenue numbers on April 23. – Bloomberg
