French luxury conglomerate Kering, known for its prestigious brands such as Gucci, Yves Saint Laurent, and Bottega Veneta, confronted a significant setback in the first quarter, registering a 10% decline in sales. This downturn primarily stemmed from challenges faced by its flagship label, Gucci, amidst a sluggish market in China and internal leadership changes.
The company disclosed a warning during its earnings report on Tuesday, projecting a potential decrease of up to 45% in recurring operating income for the first half of the year compared to the same period in 2023. Consequently, Kering’s stock experienced a notable drop of over 8% on Wednesday morning.
The largest of Kering’s brands, Gucci, encountered the most pronounced decline in sales during the first quarter, with revenues plummeting by 18% on a comparable basis to €2 billion, or $2.2 billion. This contributed to Kering’s overall revenue decline of 10% in the same period, totaling €4.5 billion. Analysts, including Barclays’ Carol Madjo, expressed uncertainty regarding Gucci’s recovery trajectory amidst the challenging market conditions, as cited by the Financial Times.
Gucci attributed its sales decline primarily to a sharp downturn in Asia, particularly in China, where it operates over two dozen stores, including a newly opened flagship store in Shanghai. The brand is currently undergoing a significant transition under the creative direction of Sabato de Sarno, who assumed the role last year after a lengthy tenure at Valentino. Despite the introduction of new products into stores, Gucci faces a daunting market landscape in China characterized by economic uncertainties, faltering real estate and stock markets, and reduced spending by foreign investors. Bloomberg analysts noted a decline in Chinese shoppers’ contribution to luxury goods spending from 33% pre-pandemic to 23% at the beginning of this year.
The challenges encountered by Kering underscore the broader difficulties faced by Western luxury brands operating in China amid ongoing market turbulence. In contrast, LVMH, Kering’s counterpart, reported strong growth in spending by Chinese customers in Europe and Japan during the first quarter, signaling shifting consumer behaviors amidst changing market dynamics.
