PARIS, Oct 24 (Reuters) - French luxury group Kering reported a bigger-than-expected drop in third-quarter sales, suffering more than rivals due to a slow turnaround effort at its top brand Gucci and a changes to distribution that hit its smaller labels like Yves Saint Laurent.

Kering which also owns Balenciaga and Bottega Veneta said on Tuesday that sales for the third quarter came in at 4.46 billion euros ($4.72 billion), a 9% drop at constant currencies and scope, below consensus expectations for a 6% decline.

The sector has been hit by slowing demand for luxury fashion. But Gucci, which accounts for over a half of Kering's annual sales and is in a middle of a revamp following a disappointing performance over the past two years, saw a fall in sales of around 7%.

Deputy CEO Jean-Marc Duplaix told reporters that Gucci's profitability would decline this year compared to last year and that next year will be flat. The company had forecast an improvement this year in Gucci's recurring operating margin from 35.6% at the end of 2022.

Revenues at smaller brands that until recently had enjoyed stellar growth also declined in the third quarter, with Saint Laurent posting a 12% fall and Bottega Veneta down 7%.

Beyond worsening macroeconomic conditions, the company's performance reflected Kering's move to take distribution in house by reducing sales through wholesale channels in a bid to cut promotions and move its labels upmarket, weighing on the group's performance in the United States especially, Duplaix said.

Rising inflation and economic uncertainty have curbed shoppers' appetite for luxury after years of blockbuster demand, prompting investors to cut their exposure to the industry and trim forecasts.

But Kering is doing worse than rivals.

LVMH, the world's biggest luxury group and one of Europe's biggest companies by market value, this month also reported a slowdown in third-quarter sales -- although it still clocked an increase in revenues with sales at its fashion and leather goods division up 9%. And Birkin bag-maker Hermes on Tuesday reported a rise in sales of 15.6%.

Kering has undertaken a sweeping overhaul aimed at reviving Gucci, which has struggled to capitalize on the strong post-pandemic rebound in luxury goods sales and lost ground to rivals like LVMH's Dior and Louis Vuitton.

It reshuffled the brand's top management and appointed a new creative director, who unveiled a style reset on a Milan runway in September.

The minimalist looks, which marked a departure from eccentric styles that had fallen out of fashion, especially with younger Chinese, will not hit stores before early next year.

Kering needs to increase investments on advertising and in-store events, Duplaix said.

($1 = 0.9447 euros) (Reporting by Mimosa Spencer, editing by Silvia Aloisi and Cynthia Osterman)