Kering stock slides on slowdown in Gucci sales

Shares of Kering (PPRUY, KER.PA) are falling Wednesday, following the company's announcement that its iconic Gucci brand has faced a slowdown in sales. Kering has issued a warning regarding its first quarter sales performance, weighing on the company's stock price.

Yahoo Finance's Seana Smith and Brad Smith break down the details, providing insights into the rebound of luxury retail.

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Editor's note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: Luxury group Kering warning that its Gucci brand sales look set to fall roughly 20% in the first quarter. This comes amid uncertainty around demand out of China. Shares of Kering plummeting right now. They're down by about 13.8%.

Interesting here, and especially as we're getting some more calls after what has come forward from the company. You've got even more of this. Look at luxury coming out of BofA specifically underlying data for the first quarter to date. Slightly better than expected in the US and Europe, but Asia demand is more mixed as of right now.

SEANA SMITH: It is more mixed. But at least from Bank of America's perspective, it is starting to improve a little bit. And you would think that would obviously bode well for many of these luxury retailers. They did note that Chinese consumer confidence has picked up or did pick up in January following what had been a muted nine months there.

However, though, still well below the levels that they had seen pre-2022. So they do expect Chinese revenues to be up about 10% in Q1 overall mainland China, though, negative. So what this all means for luxury retailers is that maybe the worst is behind them in terms of that fall off in demand, especially with what we saw play out in China, specifically.

But in terms of that turnaround story or being able to really pick up some of that momentum, that might be a couple of months, a couple of quarters out. At least when you take into account the commentary that we're getting from many of these luxury retailers most recently.

And then it's also important to point out-- and I think interesting to point out just the performance of Kering, specifically Gucci and stacking that up against Hermes and stacking it up against LVMH, Louis Vuitton, which has performed better than what we have seen play out at Gucci.

We know Gucci, like you had said, is just so critical to the overall performance of Kering given the fact that about 2/3 of Kering sales is tied to Gucci. So Gucci does have a bit of an issue just in terms of resonating with the luxury consumer. So that is critical for them to be able to regain some of that lost momentum.

BRAD SMITH: Yeah. Really interesting here. They talk about-- and the upside risks to their price objective here. One of them being a growth investment, macro pickup as like for like and growth investment are dependent on demand for apparel. That is the upside risk. That has historically been correlated to global GDP growth.

They're also citing second here, a potential resurgence in Gucci brand momentum or higher than expected brand strength at Bottega Veneta. I mean, you can really tell that I'm not the ideal customer here, or just in a different bracket in entirety. But the downside risk here is the macro slowdown, is brand weakness, failure to sustain out performance at Gucci, sharper than expected, slowdown in momentum at Saint Laurent.

I can mention that one. They had that at Century 21-- and an unsuccessful turnaround at Bottega Veneta. I think I got it right--

SEANA SMITH: You got it.

BRAD SMITH: --that time.

SEANA SMITH: Yeah. Not bad. I'll give it to you.

BRAD SMITH: I'm trying. I'm trying.

SEANA SMITH: Yeah. Every time.

BRAD SMITH: I've got to call up Oliver Chen. He's got all the pronunciations.

SEANA SMITH: He knows it all.