Gucci owner Kering drops 12% as luxury braces for tough winter

Gucci Owner Kering Shares Slide 12% Amid Weak Luxury Sales and Economic Headwinds

Luxury Sector Faces Mounting Challenges in 2023

Kering's Performance and Strategic Response

LONDON, Oct 23 (Reuters) - Shares in Gucci owner Kering tumbled 12% on Friday after the group reported further sales declines, but said it would stick with CEO Luca de Meo's turnaround plan and accelerate store closures, aiming for 125 by year-end.

Turnaround Plan and Store Closures

The recovery long promised by luxury brands seems nowhere in sight, as the expansion of war in the Middle East, along with China's tax crackdown on the wealthy, piled further pressure on the world's biggest luxury conglomerates in the third quarter, and executives buckled in for a tough winter.

Political and Economic Risks

Riots in Paris, leaving Louis Vuitton shop windows smashed and electric-bike bonfires near luxury shopping mecca Place Vendome, threw into sharp relief the political risk faced by luxury brands not just abroad but also at home.

Impact on Broader Luxury Market

Shares in LVMH and Hermes were also down 1% to 1.5% on Friday, as crude prices hit their highest level since early May, worsening the squeeze on households that has curbed consumers' ability to splurge on handbags and clothes.

Gucci's Brand Strategy and Sales Trends

Gucci's decline has continued despite de Meo's plan to make the brand's prices more enticing to middle-class consumers and creative director Demna's new collections hitting stores.

"The progress made on improving brand desirability remains in its very early stages," JPMorgan analyst Chiara Battistini said in a note. Gucci sales improved in wholesale, but were down 6% overall as fewer shoppers visited its stores.

Hermes and Sector-Wide Valuation Concerns

While Kering struggles to execute a turnaround against a weak economic backdrop, even high-end Hermes is showing signs of slowing, with its ready-to-wear division falling 2% in the third quarter due to weak Chinese demand. Overall, Hermes reported its weakest quarterly sales growth since 2020.

Across the sector, valuations have taken a beating as investors reassess future growth prospects. After a 40% slide in share price since January 1, Hermes' valuation is its lowest since 2014, while LVMH's is at a 10-year low.

Reporting Credits

(Reporting by Helen Reid, Additional reporting by Alessandro Parodi, Editing by Louise Heavens)