Kering issued a profit warning Tuesday ahead of the release of its first-quarter results.
Despite bracing for another year of financial pain, particularly in the first half of 2024, the luxury group expects its consolidated revenue for the period to decline “by approximately 10 percent on a comparable basis” against last year’s figures, Kering said in a statement.
The expected decline is “materially worse than consensus,” given as a 3 percent contraction, said RBC Capital Market’s Piral Dadhania in a research note.
Kering attributed the profit warning primarily to a steeper than expected drop in sales at Gucci, notably in the Asia Pacific region, with the Italian brand’s organic revenue expected to be down by 20 percent year-on-year.
The brand’s decline was much greater than RBC’s projection of an 8 percent drop, with analyst consensus at minus 4 percent.
For Bernstein’s Luca Solca, “the jury is out on whether the Chinese will like the Sabato De Sarno quiet luxury.”
According to Gucci’s parent company, initial deliveries of creative director Sabato de Sarno’s “Ancora” collection, in stores since mid-February, are “meeting with highly favorable reception,” it added.
Currently amounting to 5 percent of the product mix, a proportion that could reach 40 percent by year’s end, “more time is needed to assess customer reaction,” Dadhania noted.
Overall, RBC’s Dadhania expects initial market reaction to Kering’s profit warning to be negative, both on sentiment and the implication that Gucci’s half-year and full-year margins will be compressed and, therefore, possibly coming in under the group’s guidance of “at least mid-single-digit EBIT decline” for 2024.
Also factoring into the reported revenue is the combination of Creed’s consolidation on a full quarter to positive effect and a negative foreign exchange impact. These are estimated as a 1 to 2 percent contraction.
Overall, “the bad news on Kering is company specific, but is also a good reminder that consumer confidence and discretionary spend in China is soft,” Solca said.
Kering will release its first-quarter revenue after the stock market closes on April 23.
