Mimosa Spencer
PARIS (Reuters) – Shares Kering (EPA:) is expected to open lower on Wednesday after the company warned first-quarter sales of its star label Gucci would fall about 20% due to weakness in Asia.
The warning underscores the challenge Kering faces as it seeks to revive sales of Gucci, which accounts for half the group’s sales and two-thirds of profits, while navigating economic headwinds in key markets, especially China.
The brand is undergoing a design overhaul under the creative direction of Sabato de Sarno, as it seeks to regain ground lost in recent years to rivals such as Louis Vuitton and LVMH’s Dior.
The group’s forecast sales decline of about 10% for the first three months of the year is significantly worse than the consensus expectation of a 3% decline.
The trade news, which comes as new Gucci designs make their way into stores, is a sign that more classic, legacy products such as leather bags, which the label has emphasized in its push into the high-end market, are not resonating with consumers , said James Grzinich, an analyst at Gucci. Jeffries.
The “encouraging” reception of new projects is “overshadowed by these harsh headwinds,” Grzinich said.
De Sarno’s graceful, restrained and sensual style marked a departure from the eccentric and flamboyant imagery of his predecessor Alessandro Michele. Among the brand’s new products are chunky loafers, mini shorts and glossy Jackie bags.
Bernstein analysts recently noted that De Sarno’s February show in Milan (his third) received “overwhelmingly positive” reviews from the industry and social media.
But the jury is still out on whether the Chinese will embrace the “quiet luxury of Sabato de Sarno,” said Bernstein’s Luca Solca.
In addition to the problems at Kering, analysts flagged the update as a potential headwind for the luxury sector, with Citi calling it “quite a worrying sign.”
Expectations for a strong economic recovery in China have been dashed by the country’s real estate crisis and high youth unemployment. Consultancy Bain forecasts China’s luxury goods market to grow in the mid-single digits this year, following 12% growth in 2023.