Gucci sales fall as Kering lags peers facing luxury slowdown

GUCCI sales fell as Kering’s biggest brand grapples with the twin challenges of a luxury goods slowdown and internal tumult, which is set to weigh on the label’s profitability this year.

Comparable revenue at Gucci slid 7 per cent in the third quarter, Kering said on Tuesday (Oct 24). Analysts expected a drop of 6.2 per cent. Overall, sales at the Paris-based company declined 9 per cent, also missing estimates.

Kering’s performance has been lagging behind rivals as the luxury group controlled by the billionaire Pinault family navigates management and creative changes at Gucci. The brand, which generates about two-thirds of Kering’s operating profit, replaced its chief executive officer and creative director in the past year.

The disappointing performance will weigh on profitability at the Italian label, Kering’s deputy chief executive officer Jean-Marc Duplaix told analysts in a call. He said Gucci expects to take a 200 basis-point hit to its earnings margin this year.

Duplaix added that investors should not expect that margin to improve in 2024, as Kering plans more investments to guarantee the future growth of its crucial brand. Gucci’s recurring operating margin last year was 35.6 per cent.

Last month, the Italian label unveiled the debut collection of new creative director Sabato De Sarno, whose simpler designs marked a departure from the flowing fabrics and vibrant prints of his predecessor, Alessandro Michele. De Sarno’s new creations will go on sale starting in January.

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The slowdown extends beyond Gucci. Among Kering’s other labels, comparable sales at Yves Saint Laurent slid 12 per cent last quarter, while the other houses unit – whose biggest brand is Balenciaga – fell 15 per cent, both missing estimates. The brands had a high basis of comparison from a year ago and are reducing their exposure to wholesale distribution, Kering said.

“We’re still seeing a polarisation in the performance of Balenciaga, depending on the markets,” Duplaix told reporters. Demand in the US, in particular, is still suffering from the fallout over an ad campaign scandal last year, he said.

Kering’s results contrast with those of rival Hermes International, which earlier Tuesday reported sales growth of about 16 per cent in the third quarter on resilient demand for its prized handbags, topping estimates and boosting its shares.

Earlier this month, LVMH Moet Hennessy Louis Vuitton, whose brands include Christian Dior and Louis Vuitton, disappointed investors with less robust growth than expected.

Kering shares have declined 14 per cent this year, lagging behind its biggest competitors. BLOOMBERG