By Andrea Figueras

Gucci owner Kering expects profit to take a hit this year from planned investments in its fashion houses, highlighting the challenges facing the group as it pursues a reset of its core brand at a time of slowing luxury spending.

The French luxury giant on Thursday reported fourth-quarter sales of 4.97 billion euros ($5.35 billion), down 6% compared with the same period a year earlier in reported terms and down 4% on a comparable basis. This came against expectations of EUR4.91 billion, according to consensus estimates provided by Visible Alpha.

Sales at Gucci--the largest contributor to the group's revenue--fell 8% to EUR2.53 billion, and fell 4% on a comparable basis.

The company's priority is to get Gucci back on track, Chairman and Chief Executive Francois-Henri Pinault said on a conference call after results. "We are at a pivotal moment in our journey," he added.

Kering is attempting a turnaround at Gucci in an bid to catch up to luxury rivals. The brand appointed Sabato de Sarno as its creative chief in January 2023, but some analysts pointed out that the effort is still at an early stage and that signs of improvement will take time.

The company said the impact of its investment strategy will weigh on this year's recurring operating profit, its preferred profit metric, particularly in the first half. Recurring operating profit is expected to decline from the EUR4.75 billion reported for last year, which was in turn down from EUR5.59 billion in 2022.

"In a market environment that remains uncertain in early 2024, our continuing investments in our houses will put pressure on our results in the short term," Pinault said.

The investments coincide with a normalization of sales-growth patterns across the industry after the postpandemic euphoria gave way to a slowdown in demand due to high interest rates and inflation that have squeezed consumer spending.

Furthermore, economic woes in China--one of the industry's largest markets--prompted a slower-than-expected recovery for luxury companies in the country, adding to the sector's downfall.

Some analysts noted that companies that were seeking to reinvigorate their brands could face difficulties in the context of a general slowdown in luxury demand.

Gucci's fourth-quarter performance keeps the brand at a distance from LVMH's key fashion and leather-goods division, which increased sales in the same period, Bernstein analysts said in a research note.

Gucci's reinvention looks like a continuing effort that will require time, with De Sarno's first collection due to be launched later this year, the Bernstein analysts said.

At 1233 GMT on Thursday shares in Kering were up 4.4% at EUR407.45, but the stock has fallen 28% over the past year.

The company's full-year results weren't as bad as feared, as revenue declines and reinvestments were well known by the market, UBS analysts wrote in a research note.

Full-year net profit dropped to EUR2.98 billion from EUR3.61 billion in 2022, while analysts had seen net profit of EUR3.17 billion, according to Visible Alpha data.

Kering proposed a stable dividend of EUR14.00 a share for 2023.

To date, the results season shows a mixed picture for luxury companies, with Richemont and Brunello Cucinelli benefiting from a wealthier customer base, while peers such as Hugo Boss, Salvatore Ferragamo and Burberry posted results that analysts saw as disappointing.

LVMH--considered a bellwether for the whole sector--posted sales above analysts' forecasts for last year and said it enters 2024 with confidence.

French luxury group Hermes is scheduled to publish results for 2023 on Friday.

Write to Andrea Figueras at

(END) Dow Jones Newswires

02-08-24 0802ET