Luxury conglomerate Kering SA has warned of a significant decline in profit during H2, FY24 due to cooling of luxury demand and ongoing challenges in reviving its flagship brand, Gucci.
The Paris-based company reported a 30 per cent decline its recurring operating income during the period compared to the same period last year. This follows a 19 per cent drop in comparable revenue for Gucci in the second quarter, surpassing the 15.9 per cent decline anticipated by analysts.
Despite appointing a new designer last year and distributing new collections more broadly, Gucci continues to face weak demand. ArmellePoulou, CFO, acknowledges, while the brand's new creations are well-received, demand for some of its staple leather products, such as the Marmont and Ophidia bags continues to decline.
Despite owning other brands like Balenciaga and Yves Saint Laurent, Kering continues to depend on Gucci, which accounted for about two-thirds of the group's profit in the first half. Notably, BottegaVeneta was the only major brand within Kering to register growth in the second quarter.
The luxury sector is experiencing a slowdown in demand for high-end bags and apparel. Even the sales of stalwart brands such as Louis Vuitton and Christian Dior, part of LVMH Moët Hennessy Louis Vuitton SE, fell short of expectations. This year, Kering's shares also declined by roughly 25 per cent. Owned by the Pinault family and led by François-Henri Pinault, the company continues to navitage a period of heightened uncertainty. Fragile consumer confidence across all regions could further impact demand for the company’s products, opines Poulou.
In H1, FY24, Kering reported a 42 per cent drop in recurring operating income to €1.58 billion ($1.7 billion), underscoring the challenges the company faces in the current market environment.
