Kering SA's stock experienced a significant drop, plunging up to 15% in Paris, marking its largest intraday fall since 1992. This decline erased over €7.2 billion ($7.9 billion) from the company's market value. The luxury group attributed this downturn to a 20% sales decrease at its flagship brand, Gucci, particularly in the Asia-Pacific region, where the brand's bold designs are losing appeal among Chinese consumers.
The fashion conglomerate has been attempting to rejuvenate Gucci, which contributes to about two-thirds of its profits, but these efforts have yet to yield success. This sales slump has fueled speculation about how Kering might reduce its dependency on Gucci amidst a shift in consumer preferences towards more understated luxury.
Compared to its competitors like LVMH Moet Hennessy Louis Vuitton SE and Hermes International SCA, Kering has struggled to keep pace in the luxury market, especially as sales have cooled in China over the past year. LVMH and Hermes have shown more resilience, thanks to LVMH's diverse brand portfolio and Hermes's coveted handbags.
The decline in sales at Gucci reflects broader challenges within the luxury sector and raises concerns about consumer spending and the economic outlook in China. The Asia-Pacific region, excluding Japan, accounted for 35% of Kering's revenue last year, highlighting its significance to the group's overall performance.
Amid these challenges, Kering has announced that overall comparable sales will be down by approximately 10% for the period. The company has also highlighted its efforts to revitalize Gucci, including appointing Sabato De Sarno as the new designer. De Sarno's first collection, which showcases a more elegant and minimalist aesthetic, has begun arriving in stores, with early products from the Ancora collection receiving a positive reception.
Despite these efforts, analysts express concerns about Gucci's ongoing transition and its impact on Kering's performance. The company has also been active in acquisitions, such as purchasing fragrance brand Creed and acquiring a 30% stake in Valentino, but these moves have yet to significantly alter its reliance on Gucci.
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