(April 15): Gucci sales tumbled as the war in the Middle East crimped the troubled Kering brand just as it’s trying to mount a comeback under new management and creative leadership.
Revenue at Gucci slid 8% on a comparable basis during the first quarter, Kering SA said in a statement Tuesday, almost twice the drop expected by analysts.
The company’s shares fell as much as 8.1% in early Paris trading, leaving them down about 14% so far this year.
Kering and Gucci have both undergone overhauls in the past year with the appointment of Luca de Meo as CEO of the group, a new Gucci CEO, and the appointment of Demna Gvasalia as artistic director of the Italian brand. The designer, who goes by his first name, was previously at Balenciaga for a decade, another Kering label.
Since taking over in September, De Meo has been quick to shuffle management and has moved faster to get the products presented at fashion shows into stores. Some of the pieces unveiled during Demna’s first Gucci catwalk collection in February in Milan, for example, were available for purchase immediately after the show.
War effect
See also: Hermès plunges most on record as Middle East war disrupts sales
Kering’s retail revenue in the Middle East fell 11% during the first quarter, hurt by the war that started in late February. The region represents around 5% of its overall retail revenue. The group said it’s closely monitoring the conflict’s impact on global tourism trends.
The war had a one percentage point negative impact on overall group sales, according to chief financial official Armelle Poulou. French rivals LVMH and Hermès also cited the conflict when reporting weaker-than-expected sales this week.
Controlled by the Pinault family, Kering has underperformed rivals in recent years as Gucci’s products lost popularity. The label’s performance is key for Kering because it accounts for about 60% of profit.
See also: LVMH has worst-ever start to a year, dimming outlook for luxury
“Gucci remains our top priority,” De Meo said in the statement. “A comprehensive turnaround is underway, with decisive actions across client, distribution and, above all, the offer.”
The new CEO will hold his first capital markets day Thursday in Florence, the Italian town where Gucci was founded in 1921.
“To turn more positive, we require evidence of inflecting brand heat for Gucci which may take further time” given the macro and industry backdrop, RBC analysts led by Piral Dadhania wrote in a note in advance of the capital markets day.
In the past year, Kering has worked on reducing its debt level, in part by selling its beauty division to L’Oréal SA in a €4 billion cash deal.
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