Kering shares tumble after weak H2 forecast
Kering shares fall nearly 8%
Gucci's revival challenged by global luxury market downturn
Top 10 luxury groups lost 230 bln euros in market value since March
Adds luxury sector value decline in paragraph 4, details on new designs and analyst comment in paragraphs 11-16
By Mimosa Spencer and Dominique Vidalon
PARIS, July 25 (Reuters) -Shares in Gucci owner Kering PRTP.PA fell sharply in early trade on Thursday after the French luxury goods group reported a bigger-than-expected drop in second-quarter sales and warned of a weak second half on subdued demand in China.
Kering shares were down 7.7% to 277.45 euros at 0834 GMT in a broadly weaker equities market, hitting their lowest level since August 2017. The shares had already fallen to their lowest level in seven years earlier this week.
Investors are concerned about a lack of visibility for the luxury sector in the coming months, beyond the easing of comparative figures. Appetite in China is a key concern with China's post-pandemic lockdown bounce having tapered off a year ago.
The top 10 luxury companies trading on Europe's STOXX 600 index have lost 230 billion euros ($249 billion) in market value since March.
On Tuesday, LVMH LVMH.PA missed quarterly results expectations as sales rose 1% and offered little prospect of a pickup soon.
Kering said on Wednesday evening that second-half operating income could fall by around 30%, following a 42% drop in the first half to 1.6 billion euros.
Analysts at JPMorgan said that while Kering's report added "limited incremental read-across to the rest of the sector", it "definitely does confirm that trends remain tough for the space overall, and in particular for turnaround stories in the
making."
Kering's efforts to revive sales at its key label Gucci have been complicated by the global luxury market downturn, with China's rebound - traditionally Gucci's most coveted market - clouded by a property crisis and high youth unemployment.
Western markets have also slowed after a post-pandemic spending spree.
Kering has been working to reignite sales at Gucci, the century-old Italian fashion house which accounts for half of group sales and two-thirds of profit, with a fresh design direction from new creative director Sabato de Sarno.
De Sarno's sensual, pared-down looks, which are key to the label's push to cater to wealthier clients who are more immune to economic headwinds, began filling stores earlier this year.
The rollout of the new designs is on track, Kering executives said late on Wednesday.
But analysts said it may take time to reassure investors, given fluctuating demand for high end fashion.
"Patience needed," said Thomas Chauvet of Citi in a note to clients. He estimates that a ramp-up of the new designs to around 30% to 40% of sales in the second half of the year could provide an "inflection point" in Gucci's sales momentum, but not likely before the fourth quarter.
"Luxury brand turnaround equity stories are probably less attractive under such volatile demand environment, reflecting consumer preference for top brands rather than those in transition," Chauvet added.
UBS analysts said they thought it would take longer for Gucci to return to growth and cut their sales estimate for 2024 by 3%, after lowering the fourth-quarter organic sales forecast to a 7% decline, from previous expectations of a 2% rise.
($1 = 0.9221 euros)
Shine comes off luxury stocks on China concerns https://tmsnrt.rs/3SkYQQJ
Top 10 luxury stocks have burnt over 230 bln euros from March https://tmsnrt.rs/3YgQuNG
Reporting by Dominique Vidalon and Mimosa Spencer; additional reporting by Anna Pruchnicka, Dominique Patton and Danilo Masoni; editing by Jason Neely and Emelia Sithole-Matarise
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