Gucci's owner is having a terrible year. The company's profit and stock have slumped as Asia sales dry up.

Gucci's revenue declined significantly in the first quarter.

CFOTO/Future Publishing via Getty Images

• Kering predicts a 45% drop in its first half-year operating income because of Asia's consumer slowdown.
• Gucci, Kering's largest brand, suffered an 18% revenue decline, with a sharp drop in Asia.
• The luxury goods market in China is struggling, and Kering's been hurt worse than its peers.

Kering, the luxury retailer that owns brands including Gucci and Yves Saint Laurent, is off to a tough start this year as Asia's consumer slowdown hits hard.

In earnings on Tuesday, the company warned that recurring operating income for the first half of the year will decline up to 45%, compared to the first half of 2023.

Kering's stock dropped more than 8% on Wednesday morning.

Gucci, the largest of Kering's brands, saw the biggest drop in sales in the first quarter, compared with YSL and other brands. Gucci's revenue declined 18% on a comparable basis, to €2 billion, or $2.2 billion, in the first three months of the year.

Kering's revenue overall declined 10% in the first quarter, to €4.5 billion.

"We find it hard at this stage to have some visibility on the path to recovery," Barclays analyst Carol Madjo wrote in a note cited by the Financial Times.

Gucci saw a "sharp decline" in Asia sales in the first quarter, the company said in the Tuesday earnings release. The brand, which has more than two dozen stores in China, opened a new flagship store in Shanghai last year.

Gucci is also in the middle of a big transition under designer Sabato de Sarno, who joined as creative director last year after 14 years at Valentino. His products are now coming into stores.

Despite the new products, Gucci is selling into a difficult market in China. Real estate and stock markets are floundering, and foreign investors are exiting in droves.

Chinese shoppers were responsible for about 23% of luxury goods spending at the start of the year — down from 33% pre-pandemic, a Bloomberg analyst said last week.

Kering has been hit harder by the slowdown in sales than other publicly traded luxury brands. Tuesday's earnings underscore the challenges that Western businesses with big Chinese arms face amid the country's tumult.

LVMH, which owns many more brands than Kering and relies less on spending in China, said in last week's earnings that it saw "strong growth in spending by Chinese customers in Europe and Japan" in the first quarter. Some wealthy Chinese shoppers are heading to Japan to take advantage of currency exchange rates.

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