Gucci sales extend falls as Iran war clouds de Meo turnaround

PARIS, April 14 (Reuters) – Sales at Kering’s Italian flagship brand Gucci dropped by 8% in the first quarter from the previous year, the fashion group said on Tuesday, as the Iran war curtailed shopping in the Middle East and international travel.

Gucci’s 1.35 billion euro ($1.59 billion) sales from January to March were slightly below analyst forecasts, with the drop marking the 11th straight quarterly decline. A Visible Alpha analyst consensus for revenues projected around 1.37 billion euros.

The result, days before Kering CEO Luca de Meo is due to unveil his strategic plan to turn around the group’s fortunes, serves as a reminder of the steep challenge ahead for the storied fashion house and its controlling shareholder, the French Pinault family.

Kering called the quarterly outcome a “first step” in its recovery.

Investors are pinning hopes on de Meo’s ability to find a recipe for success amid a jittery market and rapidly shifting trends, though most analysts expect Gucci to only return to growth in the second half of the year. 

Kering’s shares are down about 8% this year.

IRAN WAR COMPLICATES WIDER LUXURY REVIVAL

The 33-billion-euro ($39 billion) nascent turnaround has been complicated further by the Middle East conflict and fragile consumer confidence.

The conflict shaved off 1% of overall growth at the group level, with a similar effect at Gucci, said finance chief Armelle Poulou. This was in line with comments made by Kering’s larger rival LVMH on Monday. 

LVMH said fewer rich Gulf shoppers were going to local shopping malls or travelling to Europe to splash out, dragging down its shares on Tuesday.

Kering group sales, including other smaller brands like Yves Saint Laurent and jeweller Boucheron, were flat year-on-year when adjusted for currency swings, above an analyst expectation of a 5.8% decline, helped by strong jewellery and eyewear sales. 

The first styles from Georgian fashion designer Demna, who joined Gucci from sister brand Balenciaga last year, have entered stores in recent months, with hopes that those can start to boost its sales.

The brand saw some improvement in key market China, where luxury sales are hampered by a sticky real estate crisis, Poulou said. 

“In China, we have an environment which isn’t helping, but we also have some of our own difficulties on which we are working”, Poulou said.

Trends in the United States accelerated, she added, without giving further details. 

De Meo, who took the reins last September, has moved fast to shore up Kering’s balance sheet through asset sales, deepened an alliance with cosmetics giant L’Oreal and looked to untangle the group’s once unwieldy governance structure. 

For investors, the focus is now shifting to whether there are tangible signs that Gucci’s revival is on track after de Meo called last quarter’s 10% sales drop a possible turning point in a fragile recovery.

Once the group’s profit engine, Gucci’s first-quarter sales have halved from their 2023 level as years of aggressive price hikes, shifting aesthetics and managerial churn have alienated parts of its customer base.

($1 = 0.8472 euros)

(Reporting by Tassilo Hummel; Editing by Emelia Sithole-Matarise)