Gucci-owner Kering posts 10% drop in Q1 sales on sluggish Chinese demand

French luxury group Kering reported a 10% drop in first-quarter sales on Tuesday, dragged down by a slowdown at its star label Gucci, which suffered from weakness in Asia while undergoing a design overhaul. The group said its first half operating profit would be "sharply lower" due to the revenue decline and its ongoing investment in its brands.

French luxury group Kering reported a 10% drop in first-quarter sales on Tuesday, dragged down by a slowdown at its star label Gucci, which suffered from weakness in Asia while undergoing a design overhaul.

The group said its first half operating profit would be "sharply lower" due to the revenue decline and its ongoing investment in its brands. Sales for the three months ending in March stood at 4.5 billion euros ($4.82 billion), down 10% on a comparable basis.

Kering had warned on March 19 that sales over the period were likely to drop by around 10%, dashing 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. The warning prompted concern in the luxury sector about prospects for China's rebound - traditionally Gucci's most coveted market - which has been clouded by a property crisis and high youth unemployment.

Sales at Gucci in the first quarter were down 18%, significantly worse than the 4% decline in the prior quarter, the company reported. Kering reiterated its plans to continue investing in Gucci this year, with margins likely to be dented as a result.

The first designs from new creative director Sabato de Sarno began trickling into stores in mid-February. Kering has been pushing the brand upmarket, with a focus on classic leather goods, and says that early products from the new Ancora collection, which include glossy Jackie bags and chunky, platform loafers, have been well received.

Kering shares have dropped 18% since March 19, while rivals LVMH and Hermes are down 7.5% and 2.8%, respectively.

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