Luxury stocks fall as Iran war weighs on earnings; Hermes, Kering sink

Luxury shares tumbled early Wednesday after Gucci owner Kering And hermes It reported first-quarter earnings that disappointed investors amid conflict hitting luxury sales in the Middle East.

Shares of Hermes fell 14% and Kering fell 10%. The companies’ updates have also impacted the broader luxury industry. burberry, Christian Dior, LVMHAnd moncler pan-European worst performers Stoxx 600 indexEach fell between 2% and 3%.

“Despite the slowdown in tourist flows due to the situation in the Middle East, sales in the group’s stores increased by 7%,” Hermes said in a statement on Wednesday, reporting sales of 4.1 billion euros ($4.8 billion) in the first quarter. he said.

“Wholesale activity was significantly impacted by reduced sales to concession stores, particularly in the Middle East and at airports,” the company added.

Meanwhile, Kering Gucci, the luxury conglomerate’s largest brand, reported sales below expectations late Tuesday, despite new CEO Luca de Meo’s efforts to turn around the company’s fortunes.

First quarter revenue was 3.57 billion euros, down 6% year on year on a reported basis and remaining flat on a comparable basis at constant exchange rates.

Gucci’s organic sales fell 8%; This is a larger decline than the 6% decline seen in the sell-side consensus quoted by analysts.

Kering, which also owns the Yves Saint Laurent, Bottega Veneta and Balenciaga brands, said retail revenues in the Middle East fell 11% in the first quarter after growth in the first two months of the year.

With 79 stores in the region, the Middle East represents approximately 5% of retail revenue.

Even though the results weren’t great, investors’ attention is on the company’s Capital Markets Day on Thursday. Here, de Meo will present Kering’s strategic road map “ReconKering”.

“Gucci remains our top priority. A comprehensive turnaround is underway, with decisive action across customer, distribution and, above all, the offering,” De Meo said after the bell on Tuesday.

Bernstein analyst Luca Solca called the results a “reality check.”

“The 1Q26E update demonstrates what we have observed time and time again in self-help stories: it is easier and faster for the market to believe in a recovery than for management to produce it,” the analyst said.

This comes at a time when Kering, like many of its luxury peers, is experiencing a years-long contraction following a boom that ends in 2022. Demand rose sharply during the Covid-19 pandemic, leading to price increases that eventually alienated customers. Combined with weak demand in China, which used to be one of the industry’s main growth drivers, businesses have suffered.

Last year, Kering appointed de Meo to get the company back on the growth path. While he was a surprising pick for many given his background in the auto industry, the stock has risen nearly 10% since he was inaugurated on Sept. 15, outperforming most of his peers, as investors have become increasingly optimistic about his comeback plans.

Shares rose by double digits in February after the company reported fourth-quarter results and de Meo gave an update.