Shares at Gucci parent company slump after sales slowdown

Edmund Heaphy
Finance and news reporter
Sales at Gucci game in below analyst forecasts in the second quarter. Photo: Alex Tai/SOPA Images/LightRocket via Getty Images

Shares in luxury goods group Kering (KER.PA) sunk by as much as 9% on Friday after the company on Thursday reported weaker-than-expected sales growth at star brand Gucci.

The company — which also owns the Yves Saint Laurent, Balenciaga, and Alexander McQueen brands — said sales at Gucci climbed by 12.7% in its second quarter, below analyst forecasts of 14.5% growth.

Kering pointed to a drop-off in Chinese tourists to the US, where sales declined by 2% during the period.

The company also said it had pulled back from a major US advertising campaign during the first half of the year in order to “assess the evolution” of the market there.

“We were fearing that the return on investment would be very poor considering the context,” chief financial officer Jean-Marc Duplaix said in a call with analysts.

The company had also faced backlash in February for its $890 (£713) “balaclava” knit polo neck jumper, which it was forced to remove from shops.

Customers said the jumper, which featured large red lips, resembled blackface.

After years of explosive growth at the brand, Kering had been trying to temper expectations, in part by suggesting that growth is merely normalising.

Duplaix said the slowdown was “expected” and had been flagged in recent quarters.

But that did not quell the concerns of the market. Shares in Kering recovered slightly on Friday, but were still down by more than 6%.

“The sales miss at Gucci is a negative surprise and will not alleviate investor concerns on Gucci’s fading sales momentum in the second half of 2019,” Thomas Chauvet, an analyst at Citi, said in a note.

Overall sales at Kering were in line with expectations, but Gucci, its oldest and most prominent brand, is considered the backbone of the company.

That is in part because the brand is very profitable. Despite the slowdown in sales, Gucci managed to meet its target of reaching a 40% operating margin in the first half of the year.