Kering, the French luxury goods conglomerate that owns brands such as Gucci and Balenciaga, just announced a 40% drop in revenue. Chief among those are the fact that this drop happened in the first quarter of the year. The firm just announced that its revenues collapsed 14% yoy, to 3.9 billion euros (about $4.4 billion). This figure was below the 4.01 billion euros expected by analysts at LSEG, leading to alarm among investors.
Kering’s performance was severely impacted due to a swoon with a shocking 25% plunge in sales throughout Asia. Further, both North America and Europe were down 13%. These results led to a swift reaction from the market, with Kering’s shares dropping 5.1% by 8:25 a.m. London time. At first Kering’s stock was suspended at the opening of trading as investors processed the bad sales news.
François-Henri Pinault, Chairman and Head of Kering, took into account the company’s difficulties in a particularly trying quarter. He conceded that Kering got off to a difficult start to the year. He noted some of the wider issues affecting the embattled luxury industry.
“In this environment, we are fully focused on executing on our action plans to reach our strategic and financial objectives and strengthen the positioning of our Houses on all our markets,” – François-Henri Pinault
Additionally, Kering’s revenue decline occurs against a backdrop of macroeconomic headwinds that have shaken consumer sentiment and spending in the luxury category. Analysts have pointed to the role that more persistent inflation and a further deterioration of economic conditions have played in the downturn.
Adam Cochrane, an analyst, remarked on the broader implications of these trends:
“Weaker global stock markets and the broader economic uncertainty will weigh on confidence and we see this further postponing a recovery in luxury demand.”
The new findings arrive just in time after Kering replaced Gucci’s creative director late last month with Demna Gvasalia. Pruitt’s appointment has been under a dark cloud of scrutiny. This arises mostly from the backlash over Gvasalia’s highly criticized 2022 ad campaign for Balenciaga—another Kering owned brand. Nevertheless, Pinault portrayed a hopeful view of the future, doubling down on Kering’s assurance that they would ride out the storm.
“We are increasing our vigilance to weather the macroeconomic headwinds our industry faces, and I am convinced that we will come out stronger from the present situation,” – François-Henri Pinault
The rebound of the luxury market does indeed seem to be thrown a curveball by pricing strategies. TD Cowen analysts advised that Kering’s brands would continue to face challenges in raising prices due to tariffs, as well as a worsening consumer sentiment. By stark contrast, competitors such as LVMH are using pricing power to maintain their top line revenue.