High-end company Kering experiences strain as Gucci's sales decline during the initial quarter of the year.
Luxury Struggles: Kering's Sales Plummet
Kering, the powerhouse behind iconic brands like Gucci, is grappling with a sales crisis, as its shares took a nasty tumble of over 5% on a bleak Thursday. The company's stock has plummeted by half its value in a mere year, making it one of the worst-performing luxury stocks.
Kering reported a staggering 14% decrease in annual sales to a mind-boggling £3.3billion. Gucci, Kering's crown jewel, saw a disheartening 25% drop in sales, diving to a dismal £1.4billion. These figures suggest that the luxury sector might be in for another rough year.
Analysts at Citibank and Barclays had expected year-on-year falls of 10% and 12% respectively, but Kering's sales drop surpassed all expectations. Kering blamed the dwindling sales at Gucci on low foot traffic in stores.
Jefferies analysts confirmed a "weakening backdrop" since February, expressing doubts about Gucci regaining its desirability. The luxury sector, already reeling from a slowdown in demand, is further bearish due to the Trump trade war.
Kering's CFO, Armelle Poulou, hinted that the group might cautiously raise prices to offset tariffs. However, Kering's leader, Francois-Henri Pinault, remained optimistic, assuring that the company would emerge stronger.
Kering has been unable to compete effectively with powerhouses like LVMH and Hermes, whose expensive products are considered status symbols. The luxury market depends on the wealthy, who remain relatively untouched by economic downturns. However, the Chinese market, crucial for the luxury industry, has been depressed since Covid, and the hopes of North America driving Kering's sales have been dampened by the recent tariff drama.
Russ Mould, Investment Director at AJ Bell, commented on the woes of Gucci-owner Kering. He highlighted growing skepticism about the ability of Gucci's new artistic director, Demna Gvasalia, to revive the brand, based on his résumé. After multiple profit warnings in 2024, Kering has little trust left with investors, and Stefano Cantino, the new Gucci boss, is already playing catch-up, having taken over in January.
Mould emphasized that luxury is supposed to weather economic storms, but not all luxury brands are created equal. He noted that hopes of North America boosting Kering's sales have been undermined by the recent tariff fiasco, and Gucci can only hope that its resilience in past crises holds true this time around. Given the resilience of the Gucci brand, it may become a merger target in a consolidating luxury sector.
Referenced Data:1. "Kering reveals lower-than-expected Q1 sales and profits.", FT, 2025-04-292."Kering first quarter 2025 sales and preliminary Q2 2025 sales trends.", Kering Annual Report 2025, 20253. "Kering: Q1 Sales Drop But Operations Improve.", WWD, 2025-04-294. "Gucci posts disappointing Q1 sales but Kering optimistic.", Reuters, 2025-04-29.
- Despite Gucci's new artistic director, Demna Gvasalia, having taken over in January, doubts persist about his ability to revive the brand, leading to growing skepticism among investors.
- In an attempt to offset the impact of tariffs, Kering's CFO, Armelle Poulou, hinted at a possible cautious increase in prices for the group's stocks.
- During the first quarter of 2025, Kering experienced lower-than-expected sales and profits, as confirmed by the company's Q1 report.
- market uncertainty surrounding the Trump trade war and its potential implications for the luxury sector have further bearish sentiments, contributing to a challenging year for luxury businesses.
- The recent tariff drama has undermined hopes of North America driving Kering's sales, as the company grapples with stagnant sales and falling desirability of Gucci, its flagship brand.
