(BFM Bourse) – The title of the luxury group took a hit this Wednesday. He is penalized by a note from Stifel which takes stock of the matter one month before the publication of Kering’s annual results.
After a checkered year in 2023, luxury stocks are having difficulty starting this new 2024 stock market year.
Including Kering which shows one of the biggest declines on the Parisian market, dropping 3.5% to 379.55 euros this Wednesday around 3:30 p.m. The action is penalized by Stifel which certainly maintains its opinion on the file, but lowers its price target to 430 euros, compared to 420 euros previously.
The research office takes stock of Kering ahead of the publication of the annual results, scheduled for February 8 before the stock market. Stifel notably reduced its EBIT projections by 2% for 2023 and 3% for 2024, based on “slightly lower growth and margin assumptions for all of its brands”.
A slowdown in demand is detrimental to Gucci
In detail, the financial intermediary believes that the slowdown in luxury demand will be detrimental to a rapid recovery of Gucci. The Italian brand is still suffering from a lower desirability of its products, which weighed down Kering’s sales in the third quarter (-9% on a comparable basis and -13% on a published basis).
In a note published in December, UBS for its part highlighted the group’s efforts to breathe new life into Gucci. The Swiss bank had, however, warned “that in the current context of slowdown in the sector, this (the recovery, editor’s note) could take time and continue to put margins under pressure, which, associated with significant execution risks, means that, despite its low valuation, the stock could remain in a low range.
In November, Deutsche Bank was confident in Kering’s ability to restore luster to its Italian brand. The German bank had notably cited the assets already present which will favor the recovery of Gucci, namely a media reach for a brand weighing 10 billion euros on social networks similar to that of its largest peers, and the arrival of Sabato de Sarno, at the head of creation in January 2023.
Kering’s ability to revitalize Gucci is therefore not unanimous among analysts. “Most investors are understandably waiting for evidence of Gucci’s ability to regain some of the market share lost to its main rivals in 2020-2023 and are in no rush to buy the stock.” , notes Stifel. And among this evidence, the design office cites the arrival in stores of the new collection under the artistic touch of Sabato de Sarno from February, before constituting “100% of the new Gucci”, from here the end of 2024.
A drop in sales expected at the end of the year
For the group’s other brands, Stifel analysts are less gloomy. If for Gucci, the brand elevation strategy will take time, it is already well underway for Yves Saint-Laurent, Bottega Venega and Balenciaga, “which should ultimately improve their value”. In return, this strategy “could have an impact on volumes in 2024”, also warns the research office.
One month before the publication of annual results, Stifel therefore estimates that Gucci could show a drop in sales of 2% in the fourth quarter, after a contraction of 7% between July and September 2023. For the entire group, the office studies expect that Gucci will publish a turnover down 7% on a comparable basis still for the last quarter of 2023.
From a profitability perspective, Stifel expects an EBIT (operating profit before interest and tax) margin of 33.4% for Gucci for 2023 (a decrease of 210 basis points year-on-year). or 2.10 percentage points), an EBIT margin of 25.1% at group level (-230 basis points year-on-year) and recurring EBIT (current operating income) down 12% year-on-year , at 4.9 billion euros.
“Kering is trading at a price-to-earnings ratio of 15 times in 2023, which looks attractive compared to its 30-year average (17 times) and given its attractive profitability (25% EBIT margin expected for 2023). But for the research office, although cheap, the Kering stock still lacks catalysts for a revaluation of the stock market file in the short term.
“Consensus risks for 2024 still appear to be tilted to the downside despite significant earnings downgrades last year) if recent sector trends in key markets persist into 2024,” Stifel concludes.
Sabrina Sadgui – ©2024 BFM Bourse
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