(Bloomberg) — Shares of Kering SA tumbled after the French luxury group warned that sales of Gucci, its biggest brand, fell about 20% in the first quarter.

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The stock fell as much as 15% in Paris trading, the steepest intraday drop since 1992, wiping out more than €7 billion ($7.6 billion) of Kering’s market value.

The sales decline at Gucci – which is more dependent on China than some luxury companies – was due to a sharper-than-expected decline in the Asia-Pacific region. The fashion group is trying to revive Gucci, the Italian label that accounts for about two-thirds of its profits, but without success. The warning is likely to spark renewed speculation about how Kering could reduce its dependence on the brand, whose fortunes have changed sharply over the years in response to changing tastes.

Controlled by the billionaire Pinault family, Kering has struggled to keep up with rivals such as LVMH Moet Hennessy Louis Vuitton SE and Hermes International SCA as sales of luxury goods have cooled in the past year, especially in China. LVMH’s broader brand portfolio and Hermes’ long waiting lists for handbags have made these companies more resilient.

“Gucci has been dealing with some company-specific issues for several quarters, but this update will raise further concerns about the state of consumer spending and the Chinese economy,” Vital Knowledge analysts wrote in a note to clients.

Read more: China’s tepid recovery has left luxury stores dependent on American demand

Overall, comparable sales at Kering, which also owns labels such as Yves Saint Laurent and Balenciaga, will fall by about 10% during this period, the company said.

New designer

Gucci’s sales fell in the final months of last year as the label struggled to attract more wealthy shoppers to its pricey Double G belts and Princetown slippers. Kering CEO Francois-Henri Pinault warned last month that heavy investments in its labels will put pressure on the group’s results this year.

Sabato De Sarno was named the brand’s new designer last year and he unveiled his first collection in Milan in September, which featured a more elegant and minimalist aesthetic compared to the flamboyant looks of his predecessor, Alessandro Michele.

Read more: Sabato De Sarno’s Gucci debut features miniskirts and platform loafers

Gucci has long been one of the most volatile major luxury brands, its fortunes rising and falling based on the rumors surrounding designers like Michele and a predecessor, Tom Ford.

Kering’s problems coincide with a cooling market for high-value goods and particularly weak demand in China. Asia Pacific excluding Japan represented 35% of group sales last year, more than Western Europe and North America.

“The jury is out on whether the Chinese will like the quiet luxury of Sabato De Sarno,” said analyst Luca Solca and colleagues at Bernstein, referring to the current trend toward more subdued looks.

Early ready-to-wear products from the latest Ancora collection have been “very favorably received,” according to Kering. Their availability will increase in the coming months, the company said.

Kering’s unexpected announcement is a “quite worrying signal for the luxury goods sector,” wrote Thomas Chauvet, an analyst at Citigroup. The largest label suffers from the fact that the new collection “is in the midst of a major design and management transition, with weak performance of carryover items and limited penetration of early products”, having been delivered to only a third of the store network. from mid-February, he added.

In the meantime, Kering has been active on the acquisition front, acquiring perfume manufacturer Creed and taking a 30% stake in Valentino. Earlier this year, the company announced the purchase of a building on Manhattan’s Fifth Avenue for $963 million, as the hunt for trophy retail properties intensifies among luxury players. Yet none of these deals are transformative, leaving the company heavily dependent on Gucci for now.

While Kering is grappling with issues specific to Gucci, investors in a number of other fashion companies were shocked by the warning. Burberry Group Plc, another company in transition, fell as much as 6%, while Cartier owner Richemont fell as much as 4.7%.

Kering said in February that recurring operating revenues will decline this year from 2023, especially in the first half, and said it will “remain vigilant and disciplined with regard to its cost structure.”

(Updates with details on China exposure, earnings outlook, rivals’ stocks)

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