Kering SA shares plunged after Gucci’s owner warned that profit will tumble in the second half of the year as luxury demand cools and the turnaround effort at its biggest brand sputters.
Recurring operating income, a key profit measure, could fall by about 30% in the period compared with the previous year, Paris-based Kering said Wednesday. Comparable revenue at Gucci fell 19% in the second quarter, exceeding the drop expected by analysts.
Kering’s shares fell as much as 10% early Thursday in Paris. They’ve lost almost half their value over the past 12 months, cutting the company’s market capitalization to €34 billion ($37 billion) — roughly one-tenth the size of rival LVMH.
Kering has been hit by an industry slowdown as it struggles to revive Gucci, the Italian label that accounts for about two thirds of its profit. The company was lagging LVMH and Hermes International even before the pandemic-era luxury bubble began deflating last year. The Gucci-owner issued an earlier profit warning in April because of weak demand, particularly in China.
Gucci named a new designer last year, Sabato de Sarno, whose designs are now being distributed across its store network. The label is seeing a good reception for the new creations, which represent around a quarter of total revenue currently, Chief Financial Officer Armelle Poulou said. But Gucci is facing less demand for some of its permanent leather products, such as the Marmont or the Ophidia bags, she said.
Kering, controlled by the Pinault family and run by the family scion François-Henri Pinault, also owns labels including Balenciaga and Yves Saint Laurent but remains heavily reliant on Gucci. Bottega Veneta was the only major brand to see growth in the second quarter. Recurring operating income at Kering fell 42% to €1.58 billion ($1.7 billion) in the first half.
As luxury groups grapple with weaker demand for pricey bags and attire, even brands that proved resilient in the past are feeling an impact. LVMH’s biggest division, which includes Louis Vuitton and Christian Dior, reported results Tuesday that missed analysts’ estimates.
“There’s a lot of uncertainty right now” in luxury, Poulou said on the call. “We notice in all regions a fragile consumer confidence, and we know it can impact demand for luxury products.”