By Mimosa Spencer and Tassilo Hummel

PARIS -The crisis at Kering's flagship Gucci label deepened in the first quarter, the company said on Wednesday as it flagged possible job cuts with no signs of improvement in sight. 

Kering's first-quarter sales, marked by a 14% annual decline with a 25% drop at Gucci came in below analyst expectations and added to evidence the luxury sector is headed for another tough year as shoppers in the U.S. and China, the sector's two most important countries, cut down on lush purchases. 

A Visible Alpha consensus of analysts cited by HSBC had forecast a 9.7% drop in group sales and a 19% decline at Gucci, which accounts for roughly half of Kering's overall revenue and two-thirds of its profit. 

"We are increasing our vigilance to weather the macroeconomic headwinds", Chairman and CEO Francois-Henri Pinault said in a statement.

With sales expected to keep falling by double-digit percentage rates next quarter, Kering executives told analysts on the call that they planned to reduce redundancies between the group and brand levels and geographies to cut costs.

"We are working on any duplicates that we can have in our organization," finance chief Armelle Poulou said. 

The group has closed 25 stores so far this year, as part of a wider push to shed around 50 underperforming boutiques. 

Under pressure after a string of profit warnings linked to the troubles at Gucci, Kering shares have lost over 60% since March 2024. 

Sales worsened in both North America and Western Europe over the quarter - a sign the group, which makes most of its money in the fast-moving fashion industry, is more immediately vulnerable than other larger luxury companies following U.S. President Donald Trump's recent tariff announcements, which sparked recession fears.

Last week, LVMH  undershot expectations with a 5% sales drop in its all-important fashion and leather division. 

GUCCI TROUBLES 

Bernstein analysts said it was evidence that "the Gucci revival is yet to appear and will likely face a more difficult context".

Deputy CEO Francesca Bellettini said Gucci saw a "big downtrend" in store traffic. 

The brand, which accounts for around two-thirds of group profits, recently named in-house talent Demna as Gucci's new design chief, disappointing investors who had hoped for a prominent external hire. 

Demna has already started working with Gucci teams, Kering executives said, but declined to say when his first collection will appear on the catwalk.  

Analysts warned the designer change, officially effective July, could delay the label's long-awaited rebound. 

Bellettini said Demna's new styles will arrive "gradually" as the company rushes to speed up production and deliveries. "You won't have to wait until 2026 to see some of those products." 

Asked if the recent closure of a high-end Gucci salon in Los Angeles, designed to serve ultra-wealthy clients on an appointment-only basis, indicated a shift in strategy, Poulou said the company was still working on moving the label upmarket.

(Reporting by Tassilo Hummel and Mimosa Spencer; Editing by Makini Brice, Kirsten Donovan and David Gregorio)