Kering said Gucci's sales volume will plummet 20% in the first quarter due to the slowdown in sales in Asia.
Zhitong Finance learned that Kering Group (PPRUY.US) warned that as sales in the Asia-Pacific region fell more than expected, Gucci's sales plummeted by about 20% in the first quarter, widening the gap between the French luxury company and its more powerful competitors. Kering Group's American Depositary Receipts (ADR) fell sharply by 9% late Tuesday. The fashion group has been trying to revive its Italian brand Gucci, but to no avail. Gucci's profit accounts for about two-thirds of the group's total profit. Kering also owns brands such as Saint Laurent and Balenciaga. The company said that overall, the group's same-store sales will drop by about 10% during the same period.
Kering Group, controlled by the billionaire Pino family, has been trying to catch up with competitors such as LVMH (LVMHF.US) and Hermes International (HESAY.US) as luxury sales have cooled down over the past year. LVMH's broader brand portfolio and long waiting lists for Hermès handbags have made these companies more resilient.
“Gucci has been experiencing some company-specific issues for several quarters, but this latest news will further raise concerns about consumer spending,” analysts at Vital Knowledge wrote in a note to clients.
Gucci's sales declined in the last few months of last year as the brand struggled to attract more wealthy shoppers to buy its expensive Double G belts and Princetown slippers. Sabato De Sarno, who was appointed as the brand's new designer last year, launched his first collection in Milan in September. Compared to the gorgeous look of previous designer Alessandro Michele, this collection showcases a more elegant and simple aesthetic. Kering said that early ready-to-wear products in the latest Ancora series were “very well received.” The company said their availability will increase over the next few months. Bernstein analyst Luca Solca and her colleagues said that it is still uncertain whether that low-key and luxurious style is liked.
Citibank analyst Thomas Chauvet wrote that Kering's unexpected announcement “is a pretty worrying sign for the luxury industry.” He added that Kering's largest brands are facing “a major transformation in design and management, poor performance of legacy products, and limited penetration of early products.” As of mid-February, the new series of products had only been delivered to one-third of the store network.
While Kering has been working to solve Gucci's unique problems, investors in some other fashion companies have been horrified by its warnings. Prada's (01913) stock price in Hong Kong once plummeted 11%.