Kering sales slip 1% as Gucci’s 6% drop stalls the luxury group’s recovery

What happened

The French luxury group behind Gucci, Saint Laurent and Bottega Veneta published its third-quarter figures after the Paris market closed on Thursday. Group revenue came to €3,345 million, unchanged at reported exchange rates and 1% lower once currency effects are stripped out. Gucci brought in €1,291 million, a 4% decline as reported and 6% on a comparable basis, while sales in its own stores dropped 9%. The Financial Times (FT) reported that the disappointing quarter at the flagship brand is likely to push back the turnaround effort led by chief executive Luca de Meo. Reuters said Kering's American depositary receipts slid about 11% after the release.

What it means

Gucci matters far more than its share of sales suggests. Reuters said the brand produces roughly half of Kering's profit, so when its shoppers stay away the whole group feels it. Kering blamed weak store traffic, especially in mainland China and Japan, while North America held up best. According to Reuters, Gucci sales have now been shrinking for more than three years, and they also eased slightly in North America this quarter.

The miss stings because the previous quarter looked like a turning point. WWD noted that Gucci's decline narrowed to 2% in the second quarter, when Kering posted its first comparable sales gain in three years, helped by the arrival in stores of creative director Demna's first designs. That novelty effect faded in the third quarter, and analysts had expected Gucci to fall by about 5.4%, WWD said, so the 6% drop came in worse than forecast. The group figure, by contrast, was slightly better than the 1.3% fall analysts had pencilled in.

Beyond Gucci, the picture is more mixed than grim. Excluding Gucci, sales in Kering's own fashion stores rose 2%, with the company pointing to growth at Saint Laurent, Bottega Veneta and Brioni. Its jewelry arm, which includes Boucheron and Pomellato, grew 11% on a comparable basis, and eyewear added 4%. Wholesale revenue at Gucci jumped as new collections shipped to stores, but that channel is only about 9% of the brand's sales.

The wider backdrop is tough. Reuters pointed to the Iran war, soft Chinese demand and slowing momentum in the US as headwinds, and WWD noted that Hermès reported its weakest quarterly growth in six years earlier the same day. De Meo, a former Renault boss, wants Kering's 2025 profit margin of 11.1% to be twice as high before the decade is out, relying on savings, leaner supply chains and fewer stores. Kering kept its goal of improving its recurring operating margin this year and has shut a net 105 stores, aiming for 125 by year-end, Reuters reported. It is also replacing departed creative directors at Saint Laurent and Alexander McQueen.

The bull case

Kering's group revenue came in slightly ahead of what analysts expected, and the company held to its target for a better recurring operating margin this year. Saint Laurent, Bottega Veneta, jewelry and eyewear are all growing, which reduces reliance on Gucci. At Gucci, Kering says conversion, average prices and average spend per purchase kept improving, so a pickup in store visits could translate quickly into stronger sales.

The bear case

Gucci drives about half of group profit, and its sales fell more than forecast just one quarter after signs of recovery. Weak traffic in China and Japan has no quick fix, and the finance chief declined to say whether overall growth for the year is still the aim. New creative directors are needed at two houses, adding uncertainty, while the sharp drop in Kering's US-traded shares shows patience among investors is wearing thin.