PARIS (Reuters) – Kering reported a bigger-than-expected 11 percent drop in second-quarter revenue on Wednesday and said it expected a sharp fall in second-half recurring operating profit as it struggles to revive its flagship Gucci brand amid slowing demand in China.

The French luxury giant, which owns the Gucci, Boucheron and Balenciaga brands, recorded revenue of 4.51 billion euros in the second quarter, down 11% on a comparable basis.

This contraction is well above analysts’ expectations, who were counting on a 9% decline, according to a Visible Alpha consensus.

“(…) Kering’s current operating income for the second half of 2024 could be down by around 30% compared to the second half of 2023,” the group said in a press release.

There was a deterioration in trends in June that has so far persisted in July, Jean-Marc Duplaix, deputy CEO, said on a conference call with analysts.

Armelle Poulou, CFO, told reporters that the forecast for a drop in current operating profit in the second half, less significant than in the first half, was based on a gradual improvement in turnover, particularly for Gucci.

Gucci’s quarterly sales fell 19% year-on-year, with no improvement from the first quarter, a drop that was also bigger than the 16% decline expected by analysts.

Kering is seeking to revive Italian fashion house Gucci, which accounts for half of the group’s sales and two-thirds of its profits, under the creative direction of Sabato de Sarno, whose first designs appeared in stores earlier this year.

The models have been “well received” and deployment is well underway, Armelle Poulou told reporters.

SLOW-DOWN

These efforts, however, are coming up against a slowdown in the global luxury market, as the expected rebound in China – traditionally Gucci’s most coveted market – has been impacted by a real estate crisis and high youth unemployment.

Gucci, Kering said, continued to see a sharp decline in the Asia-Pacific region.

The group’s revenue from Chinese consumers, both in China and abroad, fell 25% in the quarter, Poulou told analysts.

Despite higher sales in Japan, Kering’s revenue fell 25% in Asia in the second quarter, mainly due to China, and largely Hong Kong and Macau, it added.

Results released the day before by its rival LVMH, the sector’s flagship company, also fell short of expectations as sales and margins fell short of consensus in most key divisions in the second quarter.

LVMH, which lost 4.66% on the Paris Stock Exchange on Wednesday, dragged the entire sector down with it. Hermès, which is due to publish its results on Thursday before the opening of markets in Europe, fell by 2.07%.

(Report by Mimosa Spencer; by Kate Entringer)

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