Kering Pounded by Luxury Slowdown, Warns on Profit

Kering issued its third profit warning this year as third-quarter sales fell 16 percent on a comparable basis to €3.78 billion ($4.08 billion), missing analysts’ already-low expectations.

A market-wide slowdown is pounding the French group. Gucci, Saint Laurent and its Other Houses unit housing Balenciaga and McQueen all posted double-digit declines, while Bottega Veneta and eyewear both delivered mid-single-digit growth.

The French group forecast full-year operating profits would drop more than 45 percent year-on-year to €2.5 billion, citing “major uncertainties likely to weigh on demand among luxury consumers in the coming months.”

Management is exploring a wave of store closures should demand fail to pick up soon.

The biggest challenge for Kering continues to be Gucci, its biggest and most profitable brand, which is struggling to revive demand after stagnant sales devolved into a sharp downturn in recent quarters. Efforts to revamp its creative and corporate structures around new leadership following the 2023 ouster of creative director Alessandro Michele and CEO Marco Bizzarri have continued to falter: sales fell 25 percent year-on-year, decelerating from a 20 percent drop in the first half.

Saint Laurent, long the group’s second-biggest business and previously a long-running success story, is also cooling off, with sales falling 12 percent on a comparable basis.

While expectations were already low for the group’s two largest brands, a deeper-than-expected decline at its Other Houses unit will hardly please investors. The segment comprising McQueen, Balenciaga and Boucheron reported sales down by 14 percent; UBS analysts had only forecast a 5 percent drop.

Sector-Wide Struggles

The luxury industry has taken a hit worldwide this year as China’s post-pandemic economic recovery remains lacklustre, with property values depressed and youth unemployment high. Meanwhile, lingering inflation, election uncertainty and geopolitical crises have weighed down consumers in the West. Many customers are also questioning the value of luxury purchases amid steep price increases across brands and simultaneous reports of declining quality and labour exploitation.

Sector leader LVMH also missed estimates in the third quarter as the Louis Vuitton- and Dior-owner’s fashion sales fell by 5 percent. Top-end Hermès, which has so far defied the downturn, is expected to report its weakest growth since 2021 when it reports sales Thursday.

Kering said it remained focused on executing its strategy “with sustained efforts to elevate and broaden the relevance of our brands,” chief financial officer Armelle Poulou said. “We are implementing a radical strategy for Gucci and the group to enhance quality and bolster both new product and carry-overs” with a keen eye to preserving a “balanced” price architecture.

The group named a new CEO for Gucci, Stefano Cantino — a veteran industry operator from Louis Vuitton and Prada — earlier this month.

Revamped Accessories

The bleak numbers show that uptake for the vision of Gucci designer Sabato de Sarno has remained soft even as a greater share of his collections rolled out to stores.

Sources say the response from top-spending ready-to-wear clients for his initial collections has been strong, in line with the brand’s elevation strategy. But the broader audience of occasional luxury buyers, who typically power the business of mega-brands at Gucci’s scale, have yet to be swayed by his more subtle, sartorial vision.

Poulou highlighted the release of three new handbag families the company is hoping can move the dial: “Emblem,” a monogrammed shoulder bag priced from $1,350; “Blondie,” a $3,900 bag embellished with a large interlocking G (launched with a campaign starring Debbie Harry); and “B bag” an oversized reinterpretation of the flagship Jackie style priced from $4,100.

A revamped bag programme with a variety of new, yet classic-looking designs is in line with Gucci’s strategy of promoting seasonal collections that are complementary to its carry-over offer. The new bags could appeal to a wider audience than De Sarno’s $8,500 leather jackets and $11,500 lace dresses, though prices will still be out of reach for many of the younger fans who powered Gucci’s last growth cycle.

“The new [handbag] offer is resonating very well with existing customers in terms of design and functionality, and with a much higher perception in quality,” Poulou said.

Store Closures

Kering will explore shuttering underperforming locations in its fleet of 1,700 stores as it seeks to adapt its cost base to a new demand reality. Notably, smaller Gucci stores in China and nearby territories will be in focus next year, though some closures could be offset by expansions in key cities.

“We are going to consolidate our footprint in Greater China in 2025. It’s a better idea to concentrate on very nice stores, but not as many,” Poulou said. “The idea is to adapt to the demand while making sure we have the right network for the rebound.”

Scrutiny on marketing budgets across the sector has raised the spectre that transitional brands will find themselves in a downward spiral, unable to invest in re-igniting demand. Kering sought to dispel that concern, saying spending on advertising and promotion remains stable even as sales decline.