Concerns are mounting within the luxury goods sector as Kering, the parent company of several high-profile fashion houses, navigates significant headwinds. The performance of its flagship brand, Gucci, has particularly alarmed observers, casting doubt on the conglomerate’s near-term prospects amidst challenging global economic conditions.
Gucci’s Sharp Sales Decline
The first quarter of 2025 brought troubling news for Kering, as its primary revenue generator, Gucci, experienced a substantial 25% year-over-year decrease in sales, settling at €1.57 billion. This sharp downturn for a brand contributing nearly half of the group’s total income immediately raised red flags among investors and market analysts. The market’s reaction was palpable, with Kering’s shares (KER) closing down 0.97% around the €173 mark following the announcement.
Wider Group Struggles and External Pressures
Gucci’s difficulties are part of a broader trend affecting the Kering portfolio. Yves Saint Laurent reported a 9% sales retreat, while even the previously resilient Bottega Veneta saw its growth decelerate to just 4%. Compounding these internal challenges are macroeconomic factors, including new tariffs implemented by the current US administration under President Donald Trump, which have intensified pressure on the luxury market, particularly in the vital Chinese region. Financial analysts have noted the difficult operating environment, with TD Cowen highlighting a lack of clear improvement signs in the Asia-Pacific market and warning of further potential negative impact on results if the downward trends at Gucci and YSL persist.
Analyst Downgrades and Strategic Doubts
Investment banks have responded by adjusting their outlook for Kering. JPMorgan Chase expressed significant reservations about the effectiveness of Gucci’s turnaround plan, stating in a report, “The absence of positive signals suggests the turnaround will be considerably slower, harming profits and cash flow.” Consequently, JPMorgan reduced its price target for Kering stock from €195 to €150. Similarly, TD Cowen revised its target downwards from €260 to €175. The consensus among analysts points towards a continued weak performance in the second quarter, with any potential recovery expected to be gradual and unlikely before the second half of the year.
Creative Direction Uncertainty
Adding to the uncertainty is the recent change in creative leadership at Gucci. Demna Gvasalia was appointed as the new artistic director in March, with his first collection anticipated in September. However, his reputation for a disruptive aesthetic has not fully convinced the market. “Concerns exist regarding Gucci’s brand identity. Without clear direction, it risks sending confusing signals to consumers,“ commented Yanmei Tang of Third Bridge. The brand’s history of strategic missteps and leadership turnover has further complicated the situation.
Despite the prevailing pessimism, some analysts believe the market reaction may be overly harsh. Jelena Sokolova from Morningstar suggested that Gucci’s enduring global reputation, significant pricing power, and robust distribution control make a permanent decline unlikely.
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