Kering shares plunged on Wednesday, their worst day ever after the French luxury goods company warned that a downturn in Asia would cause first-quarter sales of its star brand Gucci to fall by about 20%. This is expected to be the case.
Kering shares fell 12%, shedding about $8.6 billion in market capitalization, while other big luxury goods companies (LVMH, Burberry, Richemont, Christian Dior) fell by 1.6% to 3.2%.
The warning comes as Kering seeks to reignite sales momentum at Gucci, which accounts for half of group sales and two-thirds of profits, and overcome economic headwinds in key markets, particularly China. highlighted the challenges faced.
The label is undergoing an overhaul of its designs under the creative direction of Sabbat de Sarno, in a bid to regain the ground it has lost in recent years to rivals such as LVMH-owned Louis Vuitton and Dior.
Kering expects group sales to fall by around 10% in the first three months of this year, well below the consensus forecast for a 3% decline.
The deal update comes as new Gucci designs trickle into stores, as more classic, legacy products such as leather handbags, which the brand has emphasized as it moves more upscale, resonate with consumers. James Grzynick said it’s a sign that they’re not calling the shots. Jefferies analyst.
The “encouraging” reception to the new design, which is likely to account for less than 5% of current products, “is dwarfed by its severe headwinds,” Gruzinich said.
De Sarno’s sleek, pared-back, sensual style, expected to hit stores in the coming months, marks a departure from the eccentric, flamboyant looks of his predecessor, Alessandro Michele. Features of the new brand include chunky loafers, mini-he shorts, and shiny Jackie he-handbags.
Bernstein analysts recently noted that De Sarno’s third runway show in Milan in February had generated “very positive” feedback in the industry and on social media.
But Bernstein analyst Luca Solca said the jury is still out on whether the Chinese prefer “the quiet luxury of Sabato de Sarno.”
Beyond Kering’s challenges, analysts warned that the update could be a potential drag on the luxury goods sector, with Citi calling it a “quite worrying sign”.
Hopes for a strong recovery in China were dashed by an economic slowdown, a debt crisis in its key real estate sector and high youth unemployment.
Consultancy Bain expects China’s luxury goods market to grow by mid-single digits this year, following 12% growth in 2023.
Analysts say the fortunes of luxury fashion brands are mixed as industry growth slows, with ultra-luxury brands such as Hermès and LVMH outperforming smaller rivals such as Burberry. .
The British label, which is undergoing a rebrand, issued a profit warning in January.
Barclays expects high-end luxury companies to grow by about 5% this year, down from nearly 9% last year, as younger consumers tend to be more frugal amid rising costs.
Kering’s stock trades at 17 times forward 12-month earnings, the second-lowest P/E in the luxury goods sector after Burberry.
This ratio is widely used in financial markets to measure the relative value of stocks.
The company’s share price has lost more than a third of its value over the past year, making it the worst performer among luxury stocks after Burberry. Hermès, by contrast, rose 34%.
