Gucci Owner Kering Expects Profitability Challenge in 2024

Kering, the French luxury giant, anticipates a decrease in profitability this year due to investments in its fashion houses and a normalization of sales growth in the luxury sector.

Fourth-quarter Sales Beat Expectations

In the fourth quarter of 2023, Kering reported sales of €4.97 billion ($5.35 billion), surpassing the consensus estimate of €4.91 billion provided by Visible Alpha. However, Gucci, a brand under Kering's umbrella, experienced an 8% decline in reported sales, amounting to €2.53 billion during the same period.

Overall Performance in 2023

For the full year of 2023, the group's recurring operating income stood at €4.75 billion, down from €5.59 billion in 2022. Kering expects a further decline in 2024, particularly in the first half.

Investments Impacting Short-Term Results

Acknowledging the uncertain market environment at the beginning of 2024, Kering stated that its ongoing investments in its fashion houses would exert pressure on its financial performance in the short term.

Revenue Figures and Gucci's Turnaround

Kering's total revenue for the year amounted to €19.57 billion, slightly lower than the previous year's figure of €20.35 billion but in line with analysts' estimates of €19.515 billion. Gucci, the primary contributor to the group's revenue, generated €9.87 billion, a decrease from €10.49 billion in 2022 but slightly surpassing analysts' expectations of €9.09 billion (Visible Alpha).

The appointment of Sabato de Sarno as creative chief in January 2023 marked the beginning of Gucci's turnaround journey. Although analysts note that it is still at an early stage, signs of improvement are anticipated to emerge gradually.

Operating Profit Falls Below Expectations

Kering's operating profit for 2023 declined to €4.63 billion from €5.395 billion, falling short of the consensus estimate of €4.89 billion provided by Visible Alpha.

Despite the profitability challenges, Kering remains committed to its long-term strategies, aiming to solidify its position in the dynamic luxury market.

Luxury Industry Faces Challenges in 2023

Full-year net profit for the luxury industry saw a decline in 2023, dropping to EUR2.98 billion from EUR3.61 billion the previous year, according to data from Visible Alpha. This result fell short of analysts' expectations, who had projected a net profit of EUR3.17 billion.

Kering, one of the major players in the luxury sector, has proposed a stable dividend of EUR14.00 per share for 2023.

The post-pandemic euphoria that once buoyed the luxury industry has started to fade, as the sector now faces a slowdown in demand. This can be attributed to high interest rates and inflation, which have tightened consumer spending.

In addition to these economic challenges, luxury companies have encountered difficulties in China, one of their largest markets. The economy in China has been struggling, resulting in a slower-than-anticipated recovery for luxury brands operating in the country.

The performance of luxury companies in 2023 has varied. Some, like Richemont and Brunello Cucinelli, have benefited from a wealthier customer base. However, others such as Hugo Boss and Burberry have disappointed with their results.

LVMH Moet Hennessy Louis Vuitton, often seen as a bellwether for the entire sector, exceeded analysts' sales forecasts for the previous year. The company expressed confidence as it entered 2024, which led to a surge in shares among some of its peers.

Meanwhile, Salvatore Ferragamo, in the midst of a brand-strengthening transition plan, experienced a decline in revenue for 2023 due to sluggish demand. Analysts noted that companies attempting to revitalize their brands may face challenges against the backdrop of a general slowdown in luxury demand.

Looking ahead, the French luxury group Hermes is set to release its 2023 results on Friday.