Gucci sales extend falls as Iran war clouds de Meo's Kering turnaround

Sales at Kering's PRTP.PA Italian flagship brand Gucci dropped by 8% in the first quarter from the previous year, the luxury fashion group said on Tuesday, as the Iran war hurt spending by Middle East shoppers and curtailed international travel.

Retail revenues in the Middle East declined by 11% in the quarter, the French group said in a statement, despite growth in the first two months of the year before the war started on February 28.

The conflict shaved off 3% of overall Kering sales in March, or 1% on the quarter as a whole, with a similar effect at Gucci, said finance chief Armelle Poulou.

This was in line with comments made by Kering's larger rival LVMH LVMH.PA late on Monday, dragging down its shares on Tuesday.

FOCUS ON DE MEO'S STRATEGIC PLAN

Gucci's 1.35 billion euro ($1.59 billion) sales from January to March were slightly below analyst forecasts, with the fall marking the 11th straight quarterly decline. An analyst consensus by provider Visible Alpha projected revenue 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 33-billion-euro ($39 billion) group's fortunes, serves as a reminder of the steep challenge ahead for the storied fashion house and its controlling shareholder, the 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. The company confirmed it was still aiming to bring Gucci back to full-year growth this year, with most analysts predicting the turning point in the third quarter.

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

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.

LUXURY GOODS DEMAND STILL WEAK IN CHINA

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, though luxury goods sales still declined from the previous year, 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, adding the group needs to boost store traffic and improve its marketing to resonate better with local consumers.

Trends in the United States accelerated, she said.

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 OREP.PA and looked to untangle the group's once unwieldy governance structure.

Investor 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.

($1 = 0.8472 euros)

-Tassilo Hummel/Reuters