Kering warns of profit plunge as Gucci turnaround sputters

Kering SA warned that its profit is set to tumble in the second half of the year as luxury demand cools and turnaround efforts at Gucci, its biggest brand, continue to sputter.

Recurring operating income, a key profit measure, could fall by about 30% in the period compared with the previous year, Paris-based Kering said Wednesday. Comparable revenue at Gucci fell 19% in the second quarter, exceeding the 15.9% drop expected by analysts. 

Kering has taken steps to revive Gucci after naming a new designer last year whose creations are now being distributed more widely across its store network. But the fashion group had to issue an earlier profit warning in April because of weak demand, particularly in China.

Gucci is seeing a good reception for the brand’s new creations, Chief Financial Officer Armelle Poulou said on a call with reporters. But the label is facing less demand for some of its permanent leather products, such as the Marmont or the Ophidia bags, she said.

Kering also owns labels including Balenciaga and Yves Saint Laurent, but remains heavily reliant on Gucci, which generated about two-thirds of group profit in the first half. Bottega Veneta was the only major brand to see growth in the second quarter.

Luxury groups are grappling with a slowdown in demand for pricey bags and attire, and even brands that proved resilient in the past are seeing an impact. LVMH Moët Hennessy Louis Vuitton SE’s biggest division, with labels including Louis Vuitton and Christian Dior, reported results Tuesday that missed estimates. 

Shares of Kering have lost about a quarter of their value so far this year. The company is controlled by the Pinault family and run by the family scion François-Henri Pinault.

“There’s a lot of uncertainty right now” in the luxury sector, Poulou said on the call. “We notice in all regions a fragile consumer confidence and we know it can impact demand for luxury products.”

Recurring operating income at Kering fell 42% to €1.58 billion ($1.7 billion) in the first half.