Gucci's Owner, Kering SA, Faces Challenges in Mainland China

Annual Profits Expected to Reach Lowest Level Since 2016

Kering SA, the parent company of Gucci, is experiencing increasing difficulties in mainland China. After issuing a profit warning earlier in the year, the company now anticipates that its annual profits will reach their lowest point since 2016. This is largely due to weak demand from the world's second-largest economy. Consequently, shares have plummeted by over 40% this year, marking the most significant annual decline since the Global Financial Crisis in 2008.

Third Quarter Revenue Down by 15%

In the third quarter, Kering reported revenue of 3.79 billion euros ($4.09 billion), a 15% decrease year-over-year. This figure fell short of the average estimate tracked by Bloomberg of 3.96 billion euros. On a comparable basis, revenue fell by 16%, which was significantly worse than the estimated decline of 10.9%.

Snapshot of Third-Quarter Earnings

A snapshot of third-quarter earnings, as provided by Bloomberg, reveals the following: - Comparable revenue: -16%, estimated: -10.9% - Gucci revenue on a comparable basis: -25%, estimated: -20.7% - Yves Saint Laurent revenue on a comparable basis: -12%, estimated: -9.94% - Bottega Veneta revenue on a comparable basis: +5%, estimated: +4.1% - Other Houses revenue on a comparable basis: -14%, estimated: -3.74% - Eyewear & corporate revenue on a comparable basis: +7%, estimated: +6.13%

Kering Attributes Poor Performance to "Major Uncertainties"

Kering attributes its poor third-quarter report to "major uncertainties" that are impacting consumers in its key retail markets worldwide. The company anticipates that its recurring operating income for the year will fall to around 2.5 billion euros, which would be the lowest level since 2016. Bloomberg noted that these results highlight the difficulties Kering is facing in repositioning its flagship brand amid a slowdown in demand for high-end goods, particularly in China.

Decline in Chinese Luxury Demand Impacts Other Luxury Brands

Last week, LVMH Moët Hennessy Louis Vuitton, the world's largest luxury goods company, reported lower sales in the third quarter, primarily due to a decrease in Chinese luxury demand. Kering's shares in Paris have fallen 42% this year. If these losses persist, it would be the worst annual decline since the 2008 Global Financial Crisis.

China's Slowdown Also Affects the Western Automotive Industry

In addition to the luxury sector, the Western automotive industry is also being severely affected by China's economic slowdown. Despite Beijing's efforts to stimulate the economy, the slowdown does not appear to be ending in the near future.

Bottom Line

The challenges faced by Kering SA and other luxury brands in mainland China highlight the significant impact of economic fluctuations on global businesses. With Kering's shares experiencing their steepest annual decline since the 2008 financial crisis, it's clear that the luxury goods sector is not immune to economic downturns. What are your thoughts on this situation? Feel free to share this article with your friends and discuss it. Remember, you can sign up for the Daily Briefing, which is delivered every day at 6pm.