Kering, the owner of Gucci, sees shares plummet following significant profit decline

Shares in Kering, the French luxury group, took a nosedive on Wednesday morning, plummeting more than 8% after the company announced a significant drop in profits for the first half of 2024. The main culprit behind this decline was the sharp decrease in sales at its flagship brand, Gucci.

Kering revealed that it anticipates a staggering 40 to 45% decrease in first-half operating income compared to the previous year, as first-quarter results showed a 10% decline in group sales to €4.5 billion on a like-for-like basis. This announcement came as a shock to analysts, who had predicted a much smaller decline of 24-30%.

The market reacted swiftly to this news, with Kering’s Paris-listed shares falling 8.5% in early trading, bringing the year-to-date decline to 17.5% and wiping out €39 billion in market value. The negative impact also spilled over to competitors LVMH and Hermès.

The decline in Gucci’s sales, which account for half of Kering’s total sales and two-thirds of its profits, was particularly concerning. The brand saw an 18% drop in sales, mainly due to sluggish performance in the crucial Chinese market.

Despite these challenges, Kering remains optimistic about the future, with plans to invest in the long-term elevation of its brands, especially Gucci. However, analysts remain cautious about the brand’s recovery prospects, citing the difficulty of changing creative direction and elevating price points simultaneously in the current market environment.

As Kering works to navigate these challenges and rebuild its growth trajectory, all eyes will be on the performance of Gucci and the company’s ability to adapt to the evolving luxury market landscape.