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Kering, owner of Gucci and Saint Laurent, on Wednesday warned its operating income could fall by as much as 30 per cent in the second half of the year, compounding the woes at the luxury group amid a wider downturn in the sector.
Paris-based Kering, one of the biggest names in luxury, was a laggard compared to peers LVMH and Hermès even during the pandemic-era boom and its performance has only worsened as the industry as a whole has slowed.
On Wednesday the group said that sales at Gucci, its biggest brand accounting for half of sales and two-thirds of profits, have fallen further as a turn round under a new designer, in addition to management changes, has so far failed to gain traction.
Sales in the second quarter fell 11 per cent to €4.5bn, coming in below expectations, while those at top brand Gucci fell 19 per cent on a like-for-like basis, including “a continuing marked decrease in Asia-Pacific”, Kering said.
Operating income at the group was down 42 per cent in the first half of the year to €1.58bn, in line with analyst expectations compiled by Reuters after the company guided sharply lower at its last results. A recurring operating margin of 17.5 per cent was significantly lower than during the same period last year which the company attributed to “negative operational leverage”.
“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 . . . While the current context might impact the pace of our execution, our determination and confidence are stronger than ever,” said chief executive François-Henri Pinault.
Kering has said that it is continuing to prioritise long term investment in its brands despite strained demand. Gucci is still rolling out product lines from its new designer Sabato de Sarno, which the group says are being well received by customers, but it is not the only brand that is struggling.
At Saint Laurent, its second largest label, sales fell 9 per cent on a comparable basis in the second quarter, accelerating the trend from earlier in the year.
Bright spots were Bottega Veneta, where sales rose 4 per cent in the second quarter, and the company’s eyewear division, where they rose 5 per cent.
Kering’s shares have fallen over 23 per cent so far this year to trade at €300 each, giving it a market capitalisation of around €36.6bn — a far sharper sell-off than industry bellwether LVMH — after the group shocked investors in April with a sharply lower profit outlook for the first half of the year.
Kering, which is controlled by the billionaire Pinault family, had already issued a rare profit warning for the luxury industry in March amid falling sales, especially in the crucial Chinese market, contrasting with Hermès and LVMH, where strong growth and profits have been the norm in recent years.
Other smaller luxury companies Hugo Boss and Burberry, which is also in the midst of a turnaround, have followed suit in recent weeks.
“More bad news and downgrades,” wrote Luca Solca at Bernstein. “The Kering guidance for the first half of the year is de facto materialising.”
