Kering announced a more significant decline in second-quarter sales than anticipated and projected a weak performance for the second half of the year. This comes as the French luxury conglomerate strives to revitalize its flagship brand, Gucci, amidst a lackluster demand from Chinese consumers. The company's sales, which include brands like Boucheron and Balenciaga, dropped to 4.5 billion euros, representing an 11% decrease on an organic basis, excluding currency fluctuations and acquisitions. This result fell short of analyst predictions of a 9% decline, according to a Visible Alpha consensus. Kering anticipates a roughly 30% reduction in operating income for the second half, following a 42% decrease in the first half to 1.6 billion euros.
Deputy CEO Jean-Marc Duplaix noted on a call with analysts that there was a worsening trend in June that has continued into July. However, CFO Armelle Poulou reassured reporters that the smaller anticipated decline in operating profit for the second half, compared to the previous six months, is predicated on a gradual revenue improvement, particularly for Gucci. Gucci's sales decreased by 19% during the quarter, mirroring the decline in the first quarter, and undershooting analyst expectations for a 16% drop, according to a Visible Alpha consensus. Kering has been overhauling Gucci, the venerable Italian fashion house that constitutes half of the group's sales and two-thirds of its profit.
New creative director Sabato de Sarno's minimalist designs, which started appearing in stores earlier this year, are central to the brand's reset and upscale strategy, aimed at attracting wealthier clientele less affected by economic downturns. Poulou mentioned that the designs have been positively received and the launch is proceeding as planned. Despite these efforts, the global luxury market's downturn and China's uncertain recovery, traditionally Gucci's most lucrative market, have complicated matters. China's challenges include a property crisis and high youth unemployment, while Western markets are adjusting after a post-pandemic spending spree.
On Tuesday, luxury sector leader LVMH's quarterly results fell short of expectations as sales increased by only 1%, providing little indication of an imminent recovery, which led to a decline in luxury goods sector shares on Wednesday. Kering's shares hit their lowest point since 2017 before the release of its results. Kering reported a significant drop in Gucci's Asia-Pacific sales. Group revenues from Chinese consumers, both domestically and internationally, fell by 25% during the quarter, as Poulou informed analysts on a call. Despite increased revenue in Japan, Kering's sales in Asia dropped by 25% in the second quarter, with notable declines in Hong Kong and Macau.
