Kering, sanctioned for Gucci's poor performance, has its worst day on the stock market

The shares of the luxury group Kering fell by more than 14% this Wednesday morning on the Paris Stock Exchange, after the announcement of a forecast of falling turnover in the first quarter, weighed down by its Gucci brand. Kering anticipates that its turnover will drop “around 10%” in the first quarter over one year, after a year 2023 already deemed “difficult” by its CEO François-Henri Pinault. “This performance mainly reflects a more marked decline in Gucci, particularly in Asia-Pacific. Thus, Gucci's turnover as of March 31 should be down nearly 20% on a comparable basis (excluding scope and exchange rate effects), the group said in a press release.

At 2:00 p.m. (1:00 p.m. GMT) on the Paris Stock Exchange, Kering's shares tumbled 13.77%, to 367.20 euros, a sharper decline than during the dark days of March 2020 and October 2008. This fall represents a loss of 7 billion euros in capitalization for the luxury group. It will publish its first quarter turnover on April 23, after the stock market closes.

In 2024, “profitability is expected to remain under pressure” in the face of “high reinvestment needs (especially for Gucci),” Stifel analysts stressed in a note. “Our priority is to put Gucci back on track,” François-Henri Pinault repeated in February. But this “won’t happen overnight,” he warned. After parting ways with Gucci's artistic creator, Alessandro Michele, in January 2023, succeeded by Sabato de Sarno, François-Henri Pinault appointed one of his closest collaborators as head of the Italian brand, Jean-François Palus, Deputy CEO of Kering.

In a note published Tuesday evening, Luca Solca, analyst for Bernstein, declared himself “on guard while waiting for more tangible signs that the new Gucci is working.” “The difficulties are specific to Kering” in the luxury sector, “but are reminiscent of the weakness of Chinese consumer confidence and spending,” adds the analyst.

Products from Sabato de Sarno's collection, "Ancora, began to be available in certain Gucci stores since mid-February and mainly in the ready-to-wear category," Kering said in its press release, ensuring that the new collection received “a very good reception”. Jefferies analysts recall in a note that “the transition towards signing De Sarno is only in its early stages”.

“The transition to a new Gucci promises to be difficult,” warn analysts at Oddo BHF. In parallel with these changes at Gucci, Kering is deploying a strategy of moving the Italian label and its other brands upmarket. But, according to Stifel analysts, the normalization of the luxury sector, after a prosperous period in the wake of the post-Covid rebound, “makes it more difficult for Gucci to quickly recover the brand while improving it at the same time”.

François-Henri Pinault said in February that he did not want to “reduce (his) investments in the future”. “This will put some pressure on our results in the short term, but we are determined to ensure that this short-term pain bears fruit in the long term,” he added. Investors “need to see evidence of Gucci’s ability to regain market share lost to its main rivals in 2020-23,” Stifel analysts say. And those at Jefferies wonder about the impact of a drop in turnover on “Kering’s ambitions in terms of mergers and acquisitions in the near future”.

Kering's stock has been shaken up on the stock market for a year due to its more contrasting financial performances than those of its competitors. Over the last twelve months, the group's shares have lost more than 34% while, at the same time, LVMH has posted an increase of 4% and Hermès a surge of almost 35%.