Gucci owner Kering issues profit warning after China sales slump | Luxury goods sector

The French billionaire François-Henri Pinault’s luxury goods company, Kering, has issued a profit warning of falling revenues, 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.

Gucci accounts for about half of its parent firm’s revenues and two-thirds of its operating profit. The Italian fashion house has embarked on a turnaround plan under new management and a new creative director, Sabato de Sarno.

Early products, mainly 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 older products 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.

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 luxury market has slowed, and UBS expects sales growth to ease to an average of 5% this year, after delivering average annual increases of 10% since 2016.

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Under its former creative director Alessandro Michele, Gucci has been popular with younger, so-called aspirational shoppers who are more vulnerable to economic pressures, unlike older, wealthier consumers.

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