Another luxury giant flashing red lights! Kering SA's net profit halved in the first half of the year, warning that profits in the second half may drop by 30% | Financial Report Insights

Another luxury goods giant with poor performance. Kering SA's profit halved in the first half of this year, with its flagship brand Gucci performing disappointingly, with both revenue and profit declining by double digits. Among its main luxury brands, only Bottega Veneta's revenue did not decrease, with sales in the Asia-Pacific region, including its largest market China, accelerating in the second quarter.

On Wednesday, July 24th, local time, Kering SA, headquartered in France, announced its financial data for the first half of this year.

1) Key Financial Data

Revenue: Revenue in the first half of the year was 9.018 billion euros, a year-on-year decrease of 11%. The revenue in the second quarter was 4.514 billion euros, lower than analysts' expectations of 4.67 billion euros.

Operating Profit: Operating profit in the first half of the year was 1.582 billion euros, a year-on-year decrease of 42%. The operating profit margin was 17.5%, a decrease of 9.5 percentage points from 27% a year ago.

Net Profit: Net profit in the first half of the year was 878 million euros, a year-on-year decrease of 51%.

EPS: Earnings per share (EPS) in the first half of the year was 7.16 euros, a year-on-year decrease of 51%.

2) Segment Revenue

Gucci: Gucci's revenue in the first half of the year was 4.085 billion euros, a year-on-year decrease of 20%. The revenue in the second quarter was 2.006 billion euros, a 19% decrease, lower than analysts' expected 15.9% decrease; operating profit in the first half of the year decreased by 44%.

Yves Saint Laurent: Yves Saint Laurent's revenue in the first half of the year was 1.441 billion euros, a year-on-year decrease of 9%. The revenue in the second quarter was 701 million euros, a 9% decrease; operating profit in the first half of the year decreased by 34%.

Bottega Veneta: Bottega Veneta's revenue in the first half of the year was 836 million euros, a 3% increase. The revenue in the second quarter was 448 million euros, a 4% increase; operating profit in the first half of the year decreased by 28%.

3) Segment Market Revenue

Asia-Pacific region excluding Japan: Revenue in the Asia-Pacific region in the first half of the year was 2.897 billion euros, a year-on-year decrease of 22%.

Western Europe: Revenue in Western Europe in the first half of the year was 2.555 billion euros, a year-on-year decrease of 7%.

North America: Revenue in North America in the first half of the year was 2.057 billion euros, a year-on-year decrease of 9%.

Japan: Revenue in Japan in the first half of the year was 737 million euros, an 8% increase.

3) Performance Outlook

It is expected that the operating profit in the second half of the year may decrease by approximately 30% year-on-year.

After the financial report was released, Kering SA's US stocks accelerated their decline, with the morning session's decline of less than 4% expanding to over 8% at the beginning of the afternoon session. When hitting a new daily low at midday, the intraday decline was about 9.1%.

Revenue in the first two quarters of this year both dropped by over 10%. Sales in the Asia-Pacific region accelerated decline month-on-month as the yen depreciated, boosting sales in Japan.

Kering SA's financial report shows that in the first two quarters of this year, the company's revenue declined by double digits, with a year-on-year decrease of 11.3% in the first quarter and 10.8% in the second quarter. Same-store sales in the second quarter dropped by 11%, exceeding analysts' expectations of 8.8%.

Kering SA stated that the continued decline in sales in the second quarter was due to persistently low foot traffic in stores, especially from local customers. The trends in each market region in the quarter were similar to those in the first quarter, with improvements in North America and Japan, including an accelerated decline in the Asia-Pacific region, including China.

Kering SA mentioned that as the largest revenue source market for the company, sales in all major markets in the Asia-Pacific region declined in the first half of the year. Consumers in the Asia-Pacific region have shifted away from local markets to other regions, mainly Japan for shopping, but this shift is not enough to offset the decline in local demand in the Asia-Pacific region.

In Western Europe, the number of Asian tourists has decreased, and their spending has not been able to compensate for the decline in sales from European local customers. Performance in North America continued to be significantly affected by a noticeable decline in local demand. Sales in Japan maintained strong growth, benefiting from an increase in tourists from the Asia-Pacific region, with the depreciation of the yen significantly increasing Japan's attractiveness as a shopping destination.

CFO warns of fragile consumer confidence affecting luxury goods demand

In April this year, Kering SA had previously warned that due to weak demand in various regions, especially in China, operating profit in the first half of the year could decline by 40% to 45%. The financial report released this Wednesday confirmed this profit warning. The performance announced by Kering SA this Wednesday once again reflects the impact of poor sales performance in China on overseas luxury brands.

Last week, Swiss luxury watch manufacturer Swatch announced a sharp 70% decline in net profit in the first half of the year, attributing it to the decline in luxury goods demand in the Chinese market; British Burberry expects to incur operating losses in the first half of this year, with full-year operating profit below guidance, while German Hugo Boss has lowered its sales and profit guidance for this year due to weak consumer demand in China and other regions worldwide; Swiss Richemont saw a slight 1% increase in sales in the first quarter, but sales in the Greater China region dropped by 27%.

Kering SA's rival, LVMH, announced on Tuesday that organic sales growth in the second quarter slowed to 1%, falling short of expectations. Organic sales in the quarter increased in Europe, America, and Japan for LVMH, but declined by 14% in regions outside Japan in Asia, partially offsetting the strong impact of Chinese tourists' overseas consumption.

LVMH hinted in its financial report that the economic and geopolitical uncertainties in the first half of the year affected its performance. François-Henri Pinault, Chairman and CEO of Kering SA, mentioned during the financial report release on Wednesday that the environment they are facing is challenging, adding pressure to the company's revenue and profit. Armelle Poulou, CFO of Kering SA, stated during the earnings call:

"There is currently a lot of uncertainty in the luxury goods industry. We have noticed that consumer confidence is fragile in all regions, and we know this may affect the demand for luxury goods."