Things aren’t looking great at Gucci, and Kering says its APAC slump is to blame

• Gucci had a challenging third quarter partly due to its APAC slump, per Kering’s latest earnings call.
• The Italian luxury brand’s sales dropped 25% this quarter compared to the previous year.
• It’s been trouble in paradise for luxury brands in China, which was once their reliable cash cow.

Gucci just had a bad quarter, and Kering is attributing the lackluster performance to a slump in its Asia Pacific market.

The Italian luxury brand saw a 25% drop in quarterly revenue as compared to a year before.

Gucci’s parent company, French luxury group Kering, reported $1.77 billion in sales in the third quarter of 2024, compared to $2.39 billion in the same period last year.

“Sales from the directly operated retail network were down 25% on a comparable basis, the House being particularly impacted by market conditions, especially in Asia-Pacific,” Kering’s press release on Wednesday said of Gucci.

The Asia Pacific region, which accounted for about a third of Gucci’s global revenue this quarter, was the major dampener on sales.

According to a third-quarter revenue infographic by Kering, sales in the APAC region were down 38% compared to the previous year.

“With discipline and determination, we are executing a far-reaching transformation of the Group, and at Gucci in particular, at a time when the whole luxury sector faces unfavorable market conditions,” the group’s CEO, François-Henri Pinault, said in the release.

“This severely impacts our performances in the short term,” he added.

Kering’s performance was weaker than analysts had predicted.

“Overall, we were expecting a challenging 3Q print, and some level of reduction in FY24E EBIT guidance, however the magnitude of earnings erosion in the short term is worse than expected,” analysts at RBC said in a note seen by Reuters.

“Of course, the debate continues to center on Gucci. How can the brand recover its mojo, how will margins ever build towards the 41%+ mid-term target, especially after FY23?” Jefferies analysts, led by James Grzinic, wrote in a note released on Wednesday.

Luxury brands have been struggling in the Asian market, particularly in China. LVMH reported a 3% year-over-year decline in sales in the third quarter due to waning demand from Chinese consumers.

An ongoing property crisis, geopolitical tensions, and high youth unemployment rates have weakened consumer confidence in the country, which was once heralded as one of the world’s hottest luxury markets.

However, a bright spot for Gucci in Asia was Japan. According to Kering, Gucci saw a 7% increase in sales in Japan in the third quarter compared to the start of 2024.

Luxury sales in Japan have been strong despite a downturn across Asia. This was partially because of its weakened currency, which attracted foreign tourists to buy luxury items on its shores.

“Right now, the devaluation of the yen is driving a lot of tourism to Japan,” Amrita Banta, managing director of luxury insights firm Agility Research & Strategy, told Business Insider in July.

Apart from Gucci, Kering’s other brand, Yves Saint Laurent, also suffered a loss. YSL’s sales were down 12% compared to the same period last year, Kering reported.

Shares for Kering fell nearly 1.5% after its earnings were released on Wednesday in Europe. Kering’s stock has fallen over 40% year-to-date.

The third quarter earnings come shortly after Kering appointed Stefano Cantino as Gucci’s new chief executive on October 8. Cantino was previously the brand’s deputy CEO.

Representatives for Kering did not respond to a request for comment from Business Insider sent outside regular business hours.