Kering's shares dive 9% as Gucci falters

By Mimosa Spencer and Dominique Patton

PARIS (Reuters) -Shares in French luxury group Kering (LON:0IIH) fell by as much as 9.3% in early trade on Wednesday, to their lowest level in over 6 years, as the market digested news of a likely 40%-45% plunge in first-half operating profit.

First-quarter sales at Kering declined 10%, the company reported after the market close on Tuesday, as wealthy shoppers curbed spending on products from its star label Gucci, reflecting a wider slowdown in luxury buying.

In the all-important Chinese market, a property crisis and high youth unemployment have weighed on Chinese shoppers' appetite for high end fashion and the company does not expect much improvement in the second quarter, company executives told analysts.

So far this year, Kering's share price has lost around a fifth of its value.

Its dive on Wednesday to the lowest level since October 2017 put it on track for the biggest one-day drop since March 20, a day after a previous warning from Kering that dashed hopes it had stemmed sales declines at Gucci.

The century-old Italian fashion house, which accounts for half of group sales and two-thirds of profit, is undergoing an overhaul. Executives are seeking to reignite sales with an aesthetic reset, led by creative director Sabato de Sarno, and including an emphasis on leather goods.

Executives say that early products from the new Ancora collection, which include glossy Jackie bags and chunky, platform loafers, have been well received, but stores will not be fully stocked with the products until later this year.

Kering's performance dragged down other luxury companies, with Burberry - which is also revamping its brand - down 3%, while shares of larger rivals LVMH (EPA:LVMH) and Hermes were slightly lower, down 0.5% and 0.2% respectively.

Leading labels such as LVMH’s Louis Vuitton and Dior, as well as Chanel and Hermes, have been widening their lead with smaller, cheaper brands as high living costs make consumers more reluctant to spend.

Kering's profit warning prompted some downward revisions from analysts.

Jefferies lowered EPS estimates by 8% to 17.19 euros, noting "triangulating Gucci's renaissance remains a challenging affair".

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While management is positive about margin recovery in the second half as the new Gucci collection becomes more available, analysts at JPMorgan (NYSE:JPM) said the execution risk was high.

"We think it is too early to turn more constructive on this turnaround journey," they said.