© Reuters. FILE PHOTO: People walk outside a Gucci shop in Rome, April 20, 2023. REUTERS/Remo Casilli/File Photo
By Mimosa Spencer
PARIS (Reuters) – French luxury group Kering (EPA:)’s sales are likely to have slowed again in the third quarter as it seeks to reignite its star label Gucci under a new creative direction and the sector shows signs of easing demand for high-end fashion.
Shoppers in Europe and the United States are cutting down on high-end purchases, while the sector’s performance in China – a key growth engine – is complicated by record high youth unemployment and a property crisis.
Kering sales are expected to fall by around 6% on a comparable basis, according to consensus estimates cited by Bernstein. It reports on Tuesday.
Rival LVMH’s recent sales update showed demand for high-end fashion falling from post-pandemic peaks, resetting investor expectations for more normalized growth levels after months of forecast-busting growth.
“The wakeup call has been pretty brutal”, analysts at HSBC said on Monday, noting investors underestimated industry caution.
TD Cowen analysts lowered its third-quarter sales estimates for Kering to down 7.7% year-on-year, from an original forecast for a 0.3% rise.
The choppy economic outlook complicates Kering’s efforts to revive sales at Gucci, which accounted for over half of sales and nearly two-thirds of group profit last year.
Once one of the industry’s biggest success stories, doubling sales to nearly 10 billion euros ($11 billion) between 2015 and 2019, Gucci lost ground to rivals like LVMH’s Dior and Louis Vuitton, which rebounded strongly from the pandemic.
Gucci’s new designer Sabato De Sarno in September introduced the brand’s aesthetic reset, with sensual, minimalist styles at his debut fashion show in Milan.
The styles, which won’t hit stores before the end of the year, marked a shift from the eccentric, gender fluid designs of his predecessor, Alessandro Michele.
The fresh approach, including “hot pieces” like platform loafers and updated versions of the Jackie bag, prompted positive feedback in the days that followed. But online interest faded to pre-show levels fairly quickly, said JPMorgan, predicting the turnaround could take time.
In the last month, Kering shares fell around 9%, while LVMH shares shed 7%, and Hermes shares are down 4.5%.
For analysts at Bernstein, who surveyed buyers for fashion retailers, there was not enough on the catwalk to suggest a “fast and material” re-acceleration at Gucci.
The shift to classic may make the collections more commercial but it pitches Gucci against incumbents like Prada (OTC:), Dior, Hermes, Loro Piana and Chanel — whereas Gucci thrives when “over the top”, style-wise, added Bernstein.
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