By John Meyer, consultant in financial affairs – Eurasia Business News, October 23, 2024. Article No 1273.

The French luxury group expects operating profit to nearly halve this year.

Kering, the French luxury group known for brands like Gucci and Yves Saint Laurent, has recently issued a significant profit warning due to a sharp decline in sales, particularly from its flagship brand, Gucci. This downturn is attributed to several factors, including a brand revamp and sluggish demand in the Asia-Pacific region.

Profit Forecast

Kering anticipates that its operating profit for the first half of 2024 will drop by 40% to 45% compared to the previous year, a more severe decline than analysts had predicted (24% to 30%). The company’s shares fell by approximately 14% following this announcement.

Gucci’s Sales Decline

Sales for Gucci are projected to fall by 20% year-over-year in the first quarter of 2024. This brand alone accounts for about half of Kering’s total sales and two-thirds of its profits, making its performance critical to the group’s overall financial health.

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Challenges in Asia

The luxury market in Asia, particularly China, has been struggling. Kering noted a marked decrease in demand from this region, which has affected sales across its brands. The company had previously hoped for a rebound in luxury spending as the Chinese economy recovered, but this has not materialized as expected.

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Brand Revamp Efforts

Kering is undergoing a transformation under new creative leadership at Gucci, with initiatives aimed at refreshing the brand’s image. However, these changes have yet to yield positive results in terms of sales performance. Analysts have pointed out that Gucci’s brand appeal has diminished among affluent consumers, partly due to past strategic decisions that prioritized margin protection over marketing investments.

Market Comparison

While Kering faces significant challenges, competitors like LVMH and Hermès have managed to report growth during this period. This contrast highlights Kering’s struggles within the broader luxury market context. The loss of the Russian market with its rich customers following the outbreak of war in Ukraine in February 2022 has also reduced the sales of the luxury group.

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Kering’s current predicament underscores the difficulties faced by luxury brands in adapting to changing consumer preferences and economic conditions. The company’s efforts to revitalize Gucci may take time to reflect in improved sales figures, leaving investors cautious as they navigate this challenging landscape.

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© Copyright 2024 – Eurasia Business News. Article no. 1273.