Shares of French luxury group Kering tumbled as much as 15% on Wednesday–the largest drop in more than three decades. The luxury goods company issued a profit warning, expecting sales at Gucci, its biggest brand, to plunge 20% year-on-year in the first quarter, notably because of slumping demand across the Asia-Pacific region. 

“In a first half that Kering expected to be challenging, current trends lead the Group to estimate that its consolidated revenue in the first quarter of 2024 should decline by approximately 10% on a comparable basis, from last year’s first quarter,” Kering said in a statement.

The statement continued, “This performance primarily reflects a steeper sales drop at Gucci, notably in the Asia-Pacific region. Gucci comparable revenues in the first quarter are expected to be down by nearly 20% year on year.”

The luxury slowdown originates in Asia, mainly China, whose economic downturn has spooked consumers. 

Shares of Kering in Paris plunged as much as 15%, the most significant drop since 1992. 

Analysts at Jefferies, led by James Grzinic, told clients: 

Vital Knowledge analysts said: 

Here’s what other Wall Street analysts are saying (list courtesy of Bloomberg):

AlphaValue (add)

Citi (buy)

RBC (outperform)

Morgan Stanley (equal-weight) 

Jefferies (hold)

Bloomberg Intelligence

Kering’s profit warning is an ominous sign for luxury stocks.

MSCI Europe Textiles Apparel & Luxury Goods has peaked. 

“European stock investors have become more upbeat on economic growth and the earnings backdrop. Yet cyclical sectors such as luxury and autos are affected by China’s sluggish rebound. That sets up luxury, a key European growth sector, for a disappointing 1Q reporting season, and a crack in bullish sentiment for the region’s stocks,” Bloomberg’s Heather Burke noted. 

Separately, Swiss watch exports recorded the first decline in three years, primarily due to a slowdown in shipments to China and Hong Kong.  

China has been the engine of global growth, but its deflationary pressures and other mounting economic troubles are spreading beyond the world’s second-largest economy to Europe.