Luxury stocks slump as Gucci sales slide

Luxury stocks tumbled in Europe Wednesday after a profit warning from the owner of Gucci laid bare a sharp slowdown in demand for high-end goods, especially in China.

Shares of Kering plunged as much as 15% in Paris, while LVMH, Europe’s second-most valuable company and owner of brands such as Louis Vuitton and Tiffany & Co., was more than 3% lower at one point.

Switzerland’s Richemont, which makes Piaget watches, Montblanc pens and Van Cleef & Arpels jewelry, slipped 3%. In London, homegrown British brand Burberry, which also warned of lower profits in January, sank as much as 6%

Following a bumper few years in the wake of the pandemic, luxury goods companies are now contending with weaker demand in one of their biggest markets: China. Consumer sentiment in the world’s second biggest economy has soured due to a protracted property market slump and related slowdown.

In an unscheduled trading update published late Tuesday, Kering said sales at its biggest brand Gucci are expected to have tumbled nearly 20% year-on-year in the first quarter, due to a steep decline in the Asia-Pacific region. Overall, comparable sales at Kering will be down 10% for the period.

“The magnitude of the warning is jarring and is raising further concerns about the state of high-end consumer demand,” Adam Crisafulli, a former JPMorgan analyst and founder of market intelligence firm Vital Knowledge told CNN.

“Gucci has been encountering some company-specific problems for a few quarters, but this update will raise further worries about the state of consumer spending and China’s economy,” he added.

China has been battling an extended spell of deflation, with consumer prices flatlining or falling in recent months. The Consumer Price Index turned positive for the first time in six months in February, largely supported by a seasonal boost in shopping linked to the Lunar New Year Holiday.

Kering, which also owns Saint Laurent and Balenciaga, has been harder hit than most rivals by lower luxury spending and last year announced a management shakeup aimed at reviving its fortunes.

The focus is squarely on reinvigorating the Italian brand that accounts for more than half its revenue.

On Tuesday, Kering said that “early” primarily ready-to-wear products from the Ancora collection have been on offer in selected Gucci stores since mid-February. “The new collection, whose availability will gradually be ramped up over the coming months, is meeting with highly favorable reception,” the company added.