Kering operating income down 42%

Dive Brief:

• Kering’s recurring operating income was down 42% for the first half of 2024 while group revenue fell 11%, according to a Wednesday earnings release.
• At Gucci, the company’s largest brand, recurring operating income for the period was down 44%, and revenue dropped 20% to 4.1 billion euros, or about $4.4 billion. Yves Saint Laurent, Bottega Veneta and Kering’s other houses, including Balenciaga, Brioni, Boucheron and Alexander McQueen, all had recurring operating income declines with revenues flat or down.
• The company’s sole bright spot was in Eyewear and Corporate, where first-half revenue rose 23% to 1.1 billion euros, which the company attributed primarily to its Kering Eyewear and Kering Beauté divisions, the latter of which included sales of Creed. Recurring operating income for the division rose 61%.

Dive Insight:

Kering’s first-half earnings report was in line with its April forecast, which projected a 40% to 45% year-over-year operating income decline for the first half 2024. At the time, the company said the projected drop was due to brand development investments strategy and an “ongoing normalization of the [luxury] sector’s growth.”

Several luxury companies have experienced ongoing earnings declines as the sector continues to see uneven performance amid global political and economic instability.

Earlier in the week, LVMH posted a first-half profit decline of 14%. Earlier in the month, Burberry reported a first-quarter retail revenue drop of 22%. Meanwhile, Richemont sales were down 1% for its first quarter, and Hugo Boss cut its earnings forecast for the year.

“In a challenging market environment, which adds pressure on our top line and profitability, we are working assiduously to create the conditions for a return to growth,” Kering Chairman and CEO François-Henri Pinault said in the company’s H1 release. “Our Houses pursue their investments to enrich their offer, intensify the impact of their communications, and reinforce the exclusivity of their distribution.”

Pinault added that Kering makes certain “every one of these investments creates value for the long term.”

“While the current context might impact the pace of our execution, our determination and confidence are stronger than ever,” he said.

Gucci regional performances “were broadly in line with those of the prior quarter, including a continuing marked decrease in Asia-Pacific,” Kering said in the release. The company added that while the new Gucci product retail rollout was well-received and in line with the company’s plans, sales of carryover merchandise were lower.

At Yves Saint Laurent, recurring operating income declined 34% and revenue was down 9%. Performance at the house was down in Asia-Pacific although “trends in Japan showed a sequential improvement,” Kering said. Wholesale revenue for the house dropped 25% in the second quarter.

Meanwhile at Bottega Veneta, recurring operating income dropped 28% and revenue remained flat, while wholesale dropped 13% and down 21% at Kering’s other houses. 

Kering’s other houses saw combined revenue declines of 7%, with a recurring operating income drop of 80% and a wholesale dip of 21%. Operating income declines at the other houses were attributed in part to “significant reinvestment in communications at Balenciaga and the impact of the transition at Alexander McQueen,” the latter of which appointed a new creative director near the end of 2023. Sales from Balenciaga’s directly operated retail network were unchanged, per the release, and the company said Alexander McQueen “continued its creative transition.” 

Kering’s first-half earnings declines come as it shuffles its executive suite. Laurent Claquin, formerly president of Kering Americas, was named to the newly created position of group chief brand officer in June. Subsequently, last week Ewa Abrams was promoted to president of Kering Americas from her previous role as general counsel of that division.