Gucci owner Kering warns on profits as earnings fall, Marketing & Advertising News, ET BrandEquity

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Luxury group Kering said on Wednesday its first-half net profit halved and warned that operating profits in the second half of the year would fall by about 30 percent.

Revenue fell 11 percent, and flagship brand Gucci continued to underperform. The company, like other luxury brands, was hit by a weakening market in China.

“In the face of challenging market conditions that are putting pressure on our revenues and profitability, we are working hard to create the conditions to return to growth,” Chief Executive Francois-Henri Pinault said in a statement.

Net income was €878 million ($953 million) on revenue of €9.0 billion.

Operating profit from current operations fell 42 percent in the first half of the year, and the company warned that the second half could be down by about 30 percent “given uncertainty around changes in demand from luxury consumers.”

Gucci’s 18 per cent drop in sales far outweighed Yves Saint Laurent’s seven per cent drop, while Bottega Veneta saw growth of three per cent.

The company reported “continued significant sales declines in the Asia Pacific region.”

The Chinese market has been a key source of growth for luxury companies in recent years, and the recent weakness in the world’s second-largest economy has hurt their performance.

Gucci’s operating profit fell 44 percent, a bigger drop than the other two fashion houses, but Kering said this was due to investments aimed at helping the brand rebound.

“The Group is prioritizing expenses and initiatives that support the long-term development and growth of its businesses, while determinedly taking the actions required by the current situation to optimize its cost structure,” Kering said.