France's Kering warns on 2024 operating profit as Gucci sales fall
Kering says 2024 operating income could drop to 2.5 bln euros
Group's Q3 sales fell 16% on an organic basis, missing estimates
Gucci sales fell 25% in Q3, worse than expected
Company struggling to revive Gucci sales
Kering shares have fallen 42% this year
Adds context and analyst comments in paragraphs 5,7-8; CFO comments and background from paragraph 17
By Mimosa Spencer
PARIS, Oct 23 (Reuters) -Kering PRTP.PA warned on Wednesday its 2024 operating income would almost halve to its lowest in years as weak demand in China deepened the struggles of the French luxury goods group's main label Gucci.
The group which also owns fashion brands Saint Laurent, Balenciaga and Bottega Veneta posted a larger-than-expected 16% drop in third-quarter revenue to 3.79 billion euros ($4.08 billion).
Analysts had expected an 11% decline, according to a consensus estimate in a Barclays note.
Kering said its 2024 recurring operating income could be about 2.5 billion euros compared with 4.75 billion euros a year earlier, following the slowdown in the quarter and "major uncertainties" likely to weigh on demand in coming months.
In the first half it had guided for a 30% decrease in its second-half recurring income, which would have seen an annual income of 2.97 billion euros, according to Reuters calculations.
Kering's warning comes as the luxury sector suffers a slowdown. Luxury bellwether LVMH LVMH.PA missed expectations last week and flagged a drop in Chinese consumer confidence to COVID-era lows, with a deterioration in demand for high-end fashion over the quarter.
"Overall, we were expecting a challenging 3Q print, and some level of reduction in FY24E EBIT guidance, however the magnitude of earnings erosion in the short term is worse than expected," analysts at RBC said in a note.
"It raises questions on earnings recoverability next year where we are likely to see further downgrades," they added.
Kering said demand weakened from the second quarter, particularly in Asia-Pacific, where sales fell 30%, and in Japan, which suffered a "significant slowdown".
Investors have been nervous about the industry since a post-pandemic spending spree lost momentum last year, with Chinese appetite for high-end fashion the key source of concern, sending luxury companies' shares on a roller-coaster.
The country's property crisis has curbed shoppers' enthusiasm, while recently-announced government stimulus measures have failed so far to rekindle demand for high end fashion.
GUCCI STRUGGLES
Sales at Gucci, which accounts for half of annual group sales and two-thirds of profit, continued to slide and were down 25% in the quarter, compared to analysts' consensus expectations for a 21% decline.
"We are executing a far-reaching transformation of the group, and at Gucci in particular, at a time when the whole luxury sector faces unfavourable market conditions," Kering Chair and CEO Francois Henri Pinault said in a statement.
Kering has been managing a broad overhaul of the century-old Italian fashion house, rebuilding top executive teams and introducing a new streamlined design style under the artistic direction of Sabato de Sarno, while pushing the products upmarket.
The overhaul of Gucci's leather goods category, with the introduction of a host of new products late in the quarter, was well underway, added the statement.
Sales of new Gucci products accounted for a third of sales over the quarter, but it was not enough to compensate for the performance of older products, including for the leather goods category, Kering CFO Armelle Poulou told journalists on a call.
Kering shares are down 42% since the start of the year, compared with a 16% decline at larger rival LVMH. Burberry, another luxury label undergoing a design overhaul, is down nearly 50%.
Earlier this month, Kering named Stefano Cantino as Gucci CEO effective from January, replacing longtime Kering executive Jean-Francois Palus who held the role for an interim period since last year.
($1 = 0.9282 euros)
Luxury stocks have been hit by China concerns https://tmsnrt.rs/3BXj8uj
Reporting by Mimosa Spencer; Editing by Emelia Sithole-Matarise
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