According to Fortune Europe, Kering SA, the parent company of Gucci, is experiencing a significant decline in profits, with a worrying 30% drop in its recurring operating income predicted for the second half of the year (Fortune Europe). This plummeting profit is largely attributed to a decline in luxury demand and the struggles of Gucci, the company's largest brand, to revive itself (FORBES). As a result, Gucci's comparable revenue fell by 19% in the second quarter, far surpassing the expected drop by analysts.
The once-thriving luxury company has seen its stock plummet as much as 10% in Paris early Thursday, reducing its market capitalization to €34 billion ($37 billion), roughly one-tenth the size of its rival LVMH (Fortune Europe). In the past 12 months... Kering's shares have lost almost half their value. These losses not only signify the company's financial struggles but also the challenging times the luxury industry is facing as a whole.
Kering's financial struggles can be attributed in part to an industry-wide slowdown, as seen with Gucci, the Italian label that accounts for about two-thirds of Kering's profit. As a result, Gucci has been unable to revive itself despite appointing a new designer, Sabato de Sarno, whose designs are being well-received by the public, especially on account of their distribution across all of Gucci's stores (Fortune Europe). However, some of Gucci's permanent leather products, such as the Marmont or the Ophidia bags, have seen less demand... Chief Financial Officer Armelle Poulou recently disclosed.
The broader luxury industry, too, is experiencing a tough time due to weakened demand for pricey bags, attire, and other luxury items. This trend is not limited to lower-end brands but has also affected top-tier companies like LVMH, whose biggest division, which includes Louis Vuitton and Christian Dior, recently reported disappointing results (FORBES). As Poulou noted on the call, "there's a lot of uncertainty right now" in the luxury market, and consumer confidence is fragile in all regions, placing a welcomed impact on demand for luxury goods.
Gucci, specifically, is at a crossroads. On the one hand, "it has been struggling to revive itself understandably and has responded by changing its design team." But then, "its efforts may be impacted by unfortunate confidence in the luxury market."
Read more: Found hereGucci Owner Kering Rocked By Luxury Industry Slowdown As Shares Crash A Further 10%
• **Gucci's profit may tumble by 30%**: Kering SA, the parent company of Gucci, has warned that its recurring operating income might fall by about 30% in the second half of the year due to a decrease in luxury demand and Gucci's struggling turnaround efforts. 2. **Gucci's comparable revenue fell 19%**: In the second quarter, Gucci's comparable revenue fell by 19%, exceeding the expected drop by analysts. This decline is attributed to weaker demand, particularly in China. 3. **New designer is helping, but not enough**: Despite Gucci's efforts to revive itself, including appointing a new designer, Sabato de Sarno, who is receiving positive feedback for his designs, the brand is still struggling. Gucci is seeing less demand for some of its permanent leather products, such as the Marmont or Ophidia bags. 4. **Industry-wide impact on luxury brands**: The luxury industry as a whole is being impacted by weaker demand for pricey bags and attire. Even top-tier companies like LVMH, whose biggest division includes Louis Vuitton and Christian Dior, are feeling the effects, with disappointing results reported recently.
Headlines:
* Shake-up at Tiffany & Co. as new CEO Alessandro Baggioli struggles to meet sales targets.
* Luxury handbag maker Coach struggles with second-quarter revenue shortfall.
* LVMH shares fall as sales outlook worsens, company cites "challenging market conditions".
* Burberry flags full-year sales target as luxury demand ___ sluggish.
* Gucci's parent company Kering sees shares plummet 10% on disappointing sales.
* Luxury goods maker Richemont sees sales slide as affluent consumers cut back on spending.
* Christian Louboutin's sales decline as luxury market slows... shares drop 12%.
Kering SA is a French multinational corporation. Its main business is the design, manufacture, and distribution of luxury goods. Gucci is the company's biggest brand, responsible for about two-thirds of its profit. The company was founded in 1963 as Pinault-Printemps-Redouté. It was renamed Kering in 2013 to eliminate any connections to founder François Pinault's past business dealings.
Kering is headquartered in Paris... France.
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Decline of Luxury Market
The luxury market has been experiencing a significant downturn, with several high-end brands feeling the pinch. As a result, companies like Gucci, a subsidiary of Kering, are struggling to stay afloat. (Fortune Europe) reported that Gucci's comparable revenue fell by 19% in the second quarter, which is a whopping drop in sales.
This decline is attributed to a combination of factors, including a slowdown in luxury demand and Gucci's own inability to revamp its brand. As a seasoned industry analyst, it's clear that the luxury market is facing a perfect storm of challenges. Weakened consumer confidence, increased competition, and a shift in consumer preferences are all contributing to this decline.
(Fortune Europe) notes that even top-tier companies like LVMH are feeling the effects of this trend. The company's biggest division, which includes Louis Vuitton and Christian Dior... recently reported disappointing results. This doesn't bode well for the future of the luxury market as a whole. But, my friend, let's be real - the situation isn't entirely doom and gloom.
Luxury brands are notorious for their ability to reinvent themselves, and Gucci is no exception. The company has appointed a new designer, Sabato de Sarno, and his designs are being well-received by the public. Gucci's distribution strategy, which involves making its products available across all its stores, is helping to boost sales.
Still... it's undoubtedly a challenging time for the luxury market. As Kering's Chief Financial Officer, Armelle Poulou, pointed out, "there's a lot of uncertainty right now" in the industry, and consumer confidence is fragile in all regions. This lack of confidence is translating into lower demand for luxury goods, which isakes it difficult for companies like Gucci to stay afloat.
Despite these challenges, there are some silver linings. For instance, the beauty industry is showing signs of resilience, with many luxury beauty brands continuing to perform well. Consumers are increasingly seeking out experiences over material possessions, "which could bode well for luxury services like fine dining and travel."So, "what does the future hold for the luxury market?" It's too early to say for sure, but one thing is certain - companies like Gucci will need to be innovative and adaptable in order to stay ahead of the curve.
As the market continues to evolve, it will be interesting to see how these luxury brands respond to the challenges and opportunities that lie ahead.
