*

Kering says 2024 operating income could drop to 2.5 bln

euros

*

Group's Q3 sales fell 16% on an organic basis, missing

estimates

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Gucci sales fell 25% in Q3, worse than expected

*

Company struggling to revive Gucci sales

*

Kering shares have fallen 42% this year

(Adds context and analyst comments in paragraphs 5,7-8; CFO

comments and background from paragraph 17)

By Mimosa Spencer

PARIS, Oct 23 (Reuters) - Kering warned on

Wednesday its 2024 operating income would almost halve to its

lowest in years as weak demand in China deepened the struggles

of the French luxury goods group's main label Gucci.

The group which also owns fashion brands Saint Laurent,

Balenciaga and Bottega Veneta posted a larger-than-expected 16%

drop in third-quarter revenue to 3.79 billion euros ($4.08

billion).

Analysts had expected an 11% decline, according to a

consensus estimate in a Barclays note.

Kering said its 2024 recurring operating income could be

about 2.5 billion euros compared with 4.75 billion euros a year

earlier, following the slowdown in the quarter and "major

uncertainties" likely to weigh on demand in coming months.

In the first half it had guided for a 30% decrease in its

second-half recurring income, which would have seen an annual

income of 2.97 billion euros, according to Reuters calculations.

Kering's warning comes as the luxury sector suffers a

slowdown. Luxury bellwether LVMH missed expectations

last week and flagged a drop in Chinese consumer confidence to

COVID-era lows, with a deterioration in demand for high-end

fashion over the quarter.

"Overall, we were expecting a challenging 3Q print, and some

level of reduction in FY24E EBIT guidance, however the magnitude

of earnings erosion in the short term is worse than expected,"

analysts at RBC said in a note.

"It raises questions on earnings recoverability next year

where we are likely to see further downgrades," they added.

Kering said demand weakened from the second quarter,

particularly in Asia-Pacific, where sales fell 30%, and in

Japan, which suffered a "significant slowdown".

Investors have been nervous about the industry since a

post-pandemic spending spree lost momentum last year, with

Chinese appetite for high-end fashion the key source of concern,

sending luxury companies' shares on a roller-coaster.

The country's property crisis has curbed shoppers'

enthusiasm, while recently-announced government stimulus

measures have failed so far to rekindle demand for high end

fashion.

GUCCI STRUGGLES

Sales at Gucci, which accounts for half of annual group

sales and two-thirds of profit, continued to slide and were down

25% in the quarter, compared to analysts' consensus expectations

for a 21% decline.

"We are executing a far-reaching transformation of the

group, and at Gucci in particular, at a time when the whole

luxury sector faces unfavourable market conditions," Kering

Chair and CEO Francois Henri Pinault said in a statement.

Kering has been managing a broad overhaul of the century-old

Italian fashion house, rebuilding top executive teams and

introducing a new streamlined design style under the artistic

direction of Sabato de Sarno, while pushing the products

upmarket.

The overhaul of Gucci's leather goods category, with the

introduction of a host of new products late in the quarter, was

well underway, added the statement.

Sales of new Gucci products accounted for a third of sales

over the quarter, but it was not enough to compensate for the

performance of older products, including for the leather goods

category, Kering CFO Armelle Poulou told journalists on a call.

Kering shares are down 42% since the start of the year,

compared with a 16% decline at larger rival LVMH. Burberry,

another luxury label undergoing a design overhaul, is down

nearly 50%.

Earlier this month, Kering named Stefano Cantino as Gucci

CEO effective from January, replacing longtime Kering executive

Jean-Francois Palus who held the role for an interim period

since last year.

($1 = 0.9282 euros)