Gucci-owner Kering forecasts 30% fall in H2 operating profit on sluggish China demand

By Mimosa Spencer

PARIS (Reuters) -Kering reported a bigger-than-expected drop in second-quarter sales and forecast a weak second half, as the French luxury group works to revive its key label Gucci while facing subdued demand from Chinese shoppers.

Sales at the French luxury group which also owns labels Boucheron and Balenciaga, fell to 4.5 billion euros ($4.9 billion), an 11% drop on an organic basis, which strips out currency effects and acquisitions.

The figure was below analyst expectations for a 9% drop, according to a Visible Alpha consensus.

Kering said second-half operating income could fall by around 30%, following a 42% drop in the first half to 1.6 billion euros.

"There was a deterioration of the trends in June that so far are persisting in July," deputy CEO Jean-Marc Duplaix said on a call with analysts.

However, chief financial officer Armelle Poulou told reporters that the forecast smaller decline in operating profit in the second half compared with the past six months was based on a gradual improvement in revenue, especially for Gucci.

Kering's American Depository Receipts (ADRs) were down about 8% in New York, extending earlier losses after the results were released.

On Tuesday, sector bellwether LVMH's quarterly results missed expectations as sales rose 1%, offering few signs that a pickup is around the corner, and sending shares in the luxury goods sector down on Wednesday.

Kering's Paris-listed shares had traded at their lowest level since 2017 ahead of its results which came after European trading.

Sales at Gucci fell 19% in the quarter, showing no improvement from the first three months, and below analyst expectations for a 16% decline, according to a Visible Alpha consensus.

Kering has been revamping Gucci, the century-old Italian fashion house which accounts for half of group sales and two-thirds of profit.

Minimalist designs from new creative director Sabato de Sarno, which began trickling into stores earlier this year, are key to the reset and push upmarket, in a bid to cater to wealthier clients who are more immune to economic headwinds.

Poulou said that the designs had been well received and the rollout was on track.

But the efforts have been complicated by a downturn in the global luxury market, while China's rebound - traditionally Gucci's most coveted market - was clouded by a property crisis and high youth unemployment as Western markets came down from a post-pandemic splurge.

Kering said Gucci experienced a marked decrease in Asia-Pacific. Group revenues from Chinese consumers, both at home and abroad, fell 25% during the quarter, Poulou told analysts on a call.

Despite higher revenue in Japan, Kering's sales in Asia fell 25% in the second quarter, with Poulou pointing to large declines in Hong Kong and Macau.

($1 = 0.9215 euros)

(Reporting by Mimosa Spencer; Additional reporting by Chuck Mikolajczak; Editing by Emelia Sithole-Matarise)