(Updated with stock price, details)
by Mimosa Spencer
Kering PRTP.PA is on course for its worst session in its history on Wednesday on the Paris Stock Exchange after the luxury group warned that first quarter sales of its flagship brand Gucci would fall by around 20% due to the low demand in Asia.
At 10:23 GMT, Kering shares lost 12.8%.
The fall in the stock, which fell by around 15% at the start of the session, reduced the group’s market capitalization by around 7.9 billion euros.
The luxury sector as a whole is suffering: LVMH
LVMH.PA lost 2.6%, Hermès HRMS.PA dropped 0.7%, the Swiss Richemont CFR.S fell 3.2% and the British Burberry
BRBY.L drops 3.9%.
The STOXX Europe Luxury 10 index .STXLUXP, which brings together heavyweights in the sector, fell by 2.67%.
The warning is a reminder of the challenge Kering faces as it seeks to revive momentum at Gucci, which accounts for half of the group’s sales and two-thirds of its operating profit, while facing difficulties in markets key countries, particularly China.
According to James Grzinic, an analyst at Jefferies, this warning, which comes as new Gucci models arrive in stores, is a sign that more classic products, such as leather handbags, on which the brand has focused emphasis as part of its move upmarket, are not meeting the expected response among consumers.
The “encouraging” reception reserved for the new models, which probably represent less than 5% of the current offer, is “eclipsed by this headwind”, estimates James Grzinic.
The brand is undergoing an overhaul under the creative direction of Sabato de Sarno and is seeking to regain lost ground in recent years to rivals such as Louis Vuitton and LVMH-owned Dior LVMH.PA .
Bernstein analysts had recently pointed out that De Sarno’s show in Milan in February – his third – attracted “overall positive” reactions from the industry and social media.
However, Bernstein’s Luca Solca questioned Chinese customers’ appeal to the “discreet luxury of Sabato De Sarno.”
Beyond the challenges facing Kering, analysts noted that this warning could weigh on the luxury sector, with Citi calling it a “rather worrying signal.”
Expectations of a strong rebound in China were dampened by the country’s real estate crisis and high youth unemployment. Consulting firm Bain forecasts single-digit growth for the Chinese luxury market this year, following growth of 12% in 2023.
In terms of results, the group announced in a preliminary press release that it expected a drop in sales of around 10% for the first three months of the year, which is significantly more marked than the expectations of analyzes which were counting on a decline. by 3%.
Analysts have highlighted the diverse fates facing high-end fashion brands as the sector’s growth slows: names operating at the high end, such as Hermès and LVMH, are outperforming smaller rivals like Burberry, which issued a profit warning in January.
Kering shares have lost more than a third of their value over the past year, making them the weakest stock among the luxury sector after Burberry, while their French rival Hermès has gained 34%.
(Reporting by Mimosa Spencer, written by Kate Entringer and Diana Mandiá, edited by Blandine Hénault and Kate Entringer)