Are Gucci’s waning sales a product of a falling global appetite for luxury items, or internal issues at parent company Kering?
Kering’s sales in the first quarter are expected to fall by 10% year-on-year, with revenues from Gucci, which accounts for two-thirds of operating income, set to drop by 20%.
There’s no doubt that luxury spending has been a big problem for the industry for the past two years, predominantly due to the cost-on-living pinch and China’s underwhelming post-Covid recovery.
Luxury sales this year are expected to grow by 6%, which is below historical trends, suggesting the luxury sector has a bumpy ride ahead.
Shares in top-end brands have been hit as a result, while luxury yardstick Louis Vuitton Moet Hennessy (EPA:MC) has added to the ominous clouds with sluggish top-line growth.
Asia-Pacific is a particular black spot for Gucci (and the industry as a whole), with “consumption trends… not particularly supportive so far for the start of the year”, according to Jefferies analysts.
But it’s not just macroeconomic trends hitting Gucci sales.
“The Gucci legacy product is failing to resonate with consumers, whilst the encouraging first reception for the first De Sarno product is dwarfed by that tough headwind,” said the US bank.
Italian designer Sabato de Sarno took over as Gucci’s creative director in 2023 before debuting his first collection in September.
He has the task of reviving sales momentum at Gucci, having declined in the latter half of former top designer Alessandro Michele’s seven-year stint.
Jefferies is looking to the post-market sales update on 23 April “for an indication of how the group will change the Gucci commercial strategy in response to this deteriorating momentum”.
No pressure, de Sarno.
Bad news for Kering
Flailing Gucci sales are “relatively bad news for Kering’s equity story in 2024”, said Citi analysts, who added that consensus earnings estimates were already reduced by high single-digit percentages just over a month ago.
This was on the back of lower earnings guidance due to planned investments behind Gucci and other brands.
With these external and internal headwinds thrust under the spotlight today, Kering’s shares fell more than 13%.