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Kering Issues Q1 Profit Warning, Expects 10 Percent Revenue Decline

This story was updated March 19 at 9:55 p.m. GMT

PARIS — Signaling a tougher-than-expected turnaround for its star brand Gucci, Kering issued a profit warning Tuesday ahead of the release of its first-quarter results.

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Despite having earlier flagged another year of financial pain as it pursues its brand elevation strategy against a background of slowing luxury spending, the French luxury group said it now expects consolidated revenue for the period to decline by around 10 percent on a comparable basis against last year’s figures.

“This performance primarily reflects a steeper sales drop at Gucci, notably in the Asia Pacific region. Gucci comparable revenues in the first quarter are expected to be down by nearly 20 percent year-on-year,” Kering said in a statement issued after the market close.

“This is relatively bad news for the sector,” commented Citi analyst Thomas Chauvet.

Organic sales at Gucci, which is undergoing a revamp under chief executive officer Jean-François Palus and creative director Sabato De Sarno, fell 4 percent in the fourth quarter, on the lower end of market forecasts. The performance did not reflect sales of De Sarno’s debut collection, which started arriving in stores in mid-February.

“The new collection, whose availability will gradually be ramped up over the coming months, is meeting with highly favorable reception,” Kering said. Gucci recently released a short documentary about the designer titled “Who Is Sabato De Sarno? A Gucci Story.”

The expected decline is “materially worse” than the consensus estimate for a 3 percent decrease in group revenues in the first quarter, RBC Capital Markets analyst Piral Dadhania said in a research note. Analysts had forecast a 4 percent decline for Gucci, with RBC coming in at the low end of estimates with its prediction for an 8 percent drop.

“However, with Gucci in the early stages of its turnaround, and with new product scaling up over the coming months, we believe more time is needed to assess customer reaction,” it added, noting that De Sarno’s designs should account for 30 percent of products in Gucci stores by the middle of the year.

“The jury is out on whether the Chinese will like the Sabato De Sarno quiet luxury,” said Bernstein analyst Luca Solca. “We are sitting on the fence waiting for more tangible signs that the new Gucci works.”

The warning was expected to weigh on luxury stocks on Wednesday, even though Kering’s woes are seen as company-specific.

The group continues to lag competitors as it implements the Gucci turnaround and seeks to rev up the ailing Balenciaga and Alexander McQueen labels. Kering reported last month that recurring operating profit fell 15 percent to 4.75 billion euros in 2023, and it expects another decline this year, particularly in the first half.

“In a market environment that remains uncertain in early 2024, our continuing investments in our houses will put pressure on our results in the short term,” Kering chairman and CEO François-Henri Pinault said at the time.

“Our number-one imperative is to further cultivate our brand exclusivity,” he elaborated on a call with analysts and reporters, adding that Kering planned to ramp up spending on advertising and events to support its strategy.

The group is due to release its first-quarter revenue on April 23.

The figure will include the positive contribution of the consolidation of niche fragrance brand Creed on a full quarter basis, as well as a negative foreign exchange impact. These two factors combined are expected to have a negative impact of 1 percent to 2 percent, Kering said.

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