Kering Stock Drops 6% as Q1 Sales Plunge 14%

On Thursday, the French luxury goods conglomerate Kering reported first-quarter sales that fell short of expectations, citing additional macroeconomic headwinds ahead, leading to a 6% drop in its stock price. The fashion giant's revenue for the first quarter plummeted 14% year-over-year to 39 billion euros (44 billion USD), missing analysts' estimates of 40.1 billion euros. Gucci, which accounts for nearly half of the group's total revenue, saw its sales decline by 25% on a comparable basis to 15.7 billion euros, as the brand's business transformation is still underway.

Kering's overall performance was weak, primarily due to a 25% decline in group sales in Asia, while sales in North America and Europe also decreased by 13%. Kering Chairman and CEO François-Henri Pinault acknowledged the challenging start to the year and emphasized the difficulties facing the struggling luxury industry. He stated, "In this environment, we are fully focused on executing our action plan to achieve our strategic and financial objectives and strengthen the position of our brands in all markets." He added, "We are on high alert to counter the macroeconomic headwinds facing our industry, and I believe we will emerge stronger from the current situation."

Last month, Kering appointed Demna Gvasalia as the new artistic director of Gucci, the latest effort by the group to turn around its struggling flagship brand. However, this appointment led to a decline in the company's stock price, as investors were concerned about the controversy surrounding Gvasalia's previous advertising campaign for the smaller Kering brand Balenciaga in 2022. Gucci has been struggling with sales for several quarters due to its designs no longer appealing to consumers and the recent downturn in its once-profitable Asian market.

This comes against the backdrop of a broader slowdown in the luxury goods market due to increased inflation and a weak economic environment. At the start of the year, the situation seemed to be improving, with many high-end fashion brands reporting optimistic fourth-quarter earnings. However, analysts had previously warned that macroeconomic slowdowns caused by tariffs could hinder the recovery of the luxury goods market.

Kering's first-quarter performance was significantly below market expectations, with the group's total revenue at 38.8 billion euros, far below analysts' estimates of 40.9 billion euros. More concerning was the 14% decline in same-store sales, exceeding analysts' expectations of an 11.9% drop. As Kering's flagship brand contributing over 60% of the group's profits, Gucci's performance was particularly poor. Gucci's first-quarter revenue was only 15.7 billion euros, below analysts' expectations of 16.2 billion euros. Same-store sales plummeted by 25%, worse than the expected 23.6% decline, marking several consecutive quarters of poor performance. The stagnation of the luxury goods market, reduced consumer spending, and U.S. tariff issues are sounding alarm bells for investors.

In an effort to revive the struggling Gucci brand, Kering appointed Demna Gvasalia as its next designer last month. Known for his eye-catching designs, such as the oversized Triple S sneakers, Demna had previously served as the artistic director of Balenciaga for a decade, driving strong growth for the brand. However, analysts noted that Gucci, being a much larger brand, would require more time for any transformation. Kering's Chief Financial Officer Armelle Poulou declined to confirm when Demna would launch his first collection for the brand, stating that Demna is already working with Gucci's team.

The challenges faced by Kering are not unique to the company. The entire luxury goods industry is under pressure, with consumer spending declining and the outlook further darkened by U.S. tariffs and escalating trade tensions. Poulou stated that Kering has the ability to raise prices in the U.S. to protect its profit margins and is still analyzing the initial tariff announcements. Even more resilient luxury goods groups, such as LVMH and Hermès, have recently reported disappointing results. For investors, the luxury goods industry's winter may last longer, and significant rebounds should not be expected until consumer confidence recovers and global trade frictions ease.