Kering issued its third profit warning this year after revenues fell 15 percent in the third quarter as weak demand across Asia caused its star brand Gucci to once again miss expectations with a sharp sales drop.
The French group, which also owns brands including Saint Laurent, Bottega Veneta, Boucheron and Balenciaga, said it now expects a recurring operating income of around 2.5 billion euros in 2024.
This would represent a decline of 47 percent from the 4.75 billion euros recorded last year. Kering cited “the major uncertainties likely to weigh on demand among luxury consumers in the coming months” and the larger-than-expected slowdown in the third quarter.
“The group prioritizes expenses and initiatives supporting the long-term development and growth of its houses, and works with determination on optimizing its cost base, the efficiency of its organization, and the return on its investments,” it said in a statement after the market close on Wednesday.
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Group revenues in the three months to Sept. 30 totaled 3.79 billion euros, representing a decline of 16 percent in comparable terms.
The figures were below a Bloomberg-compiled consensus of analyst estimates, which had called for an 11 percent drop in comparable sales amid a sharp slowdown in spending in China and ongoing political turmoil worldwide.
Kering’s star brand Gucci again fell short of expectations, with organic sales down 25 percent in the third quarter, versus analysts’ predictions for a 21 percent drop. In reported terms, revenues were down 26 percent to 1.64 billion euros.
The brand is in the middle of a turnaround process under creative director Sabato De Sarno, with Stefano Cantino poised to take over as chief executive officer on Jan. 1, marking the second senior management change in two years.
Comparable sales at Saint Laurent were down 12 percent, while Bottega Veneta gained 5 percent, and the “other houses” division — which groups brands including Balenciaga, Alexander McQueen and Boucheron — posted a 14 percent drop.
By comparison, organic sales at LVMH Moët Hennessy Louis Vuitton’s key fashion and leather goods division fell 5 percent year-over-year in the third quarter, also missing market expectations.
François-Henri Pinault, chairman and CEO of Kering, maintained the group remains on track.
“With discipline and determination, we are executing a far-reaching transformation of the group, and at Gucci in particular, at a time when the whole luxury sector faces unfavorable market conditions. This severely impacts our performances in the short term,” he said.
“Our absolute priority is to build the conditions for a return to sound, sustainable growth, while further tightening control over our costs and the selectivity of our investments. We have the right strategy, organization, and talents to achieve these goals,” he added.
Reflecting pessimism about Kering’s prospects, Citi recently downgraded the stock to neutral.
“Kering has enjoyed a relatively successful track record at turning around several key brands over the past two decades,” analyst Thomas Chauvet said in a research note.
However, the execution of luxury brand turnarounds has become “more complex, lengthy, costly and less public-market-friendly” as consumers gravitate to top brands rather than those in transition, he added.
In July, Kering issued its second profit warning this year after a drastic slowdown in luxury spending halved its bottom-line profits in the first half. Its share price has fallen by 46 percent from its intra-year peak of 434.50 euros on Feb. 22.
With luxury in a cyclical slump that analysts predict could last for one or two years, companies in turnaround mode are feeling the pressure more than others.
Even LVMH, the sector bellwether, has taken a hit. It reported last week that revenues fell 4.4 percent in the third quarter, sending its shares down by up to 7 percent the following day as part of a broader sector sell-off.
The fortunes of luxury stocks have been closely tied to China’s economic stimulus measures designed to counter weakness in domestic demand amid slumping property market and high youth unemployment.
The world’s second-largest economy will grow by 4.8 percent this year, down from the previous projection of 5 percent in July, the International Monetary Fund said in its “World Economic Outlook” this week.
