(BFM Bourse) – The luxury group shows the largest drop in the CAC 40, while the Swiss bank is no longer buying on the value. UBS believes Kering made the right decision on the revitalization of Gucci but believes it will take time.
Kering hardly shines on the stock market this Wednesday. The luxury group shows the largest drop in the CAC 40, yielding 3.7% to 525 euros. The action is penalized by a lowering of recommendation from UBS which went from “buy” to “neutral” on the stock with an adjusted target price of 572 euros against 575 euros previously.
UBS anticipates a “turbulent” year 2023 for the parent company of Gucci. It raised its earnings per share forecast by 1% for 2022 but cut it by 10% for next year and 7% for 2024.
The stock market development of the luxury giant continues to depend on the performance of Gucci, which according to UBS estimates, represents 55% of sales and 74% of operating profit (Ebit). This has overshadowed the excellent performance of the group’s other brands over the past two years.
A “new era” for Gucci
Changes will however occur within Kering, the artistic director Alessandro Michele, having left the group at the end of last month. “Gucci’s design studio will continue to provide creative responsibility for the House until a new organization is announced,” the company said at the time. UBS had also, at that time, appreciated the announcement, stressing that investors had been waiting for a change of artistic direction at Gucci for a long time.
The Swiss bank confirms on Wednesday that management has, in its opinion, made the right decision by bringing Gucci into a “new era”. But she warns that such transitions “are generally accompanied by short-term disruptions in sales and the need to reinvest”, which could weigh on the group’s financial performance compared to its peers on the stock market. In 2015, when the brand went through a similar process, its sales were flat and its margin fell by 3.7 percentage points.
UBS also notes that Alessandro Michele’s successor has yet to be announced, suggesting the company may be looking to hire externally. “While we believe this would clearly be positive in the long term, bringing a ‘fresh perspective’ on Gucci’s aesthetic, it could take time if the new nominee is bound by a non-competition clause.” the establishment. The bank thus estimates that Gucci’s momentum could thus lag behind that of its competitors in 2023.
Concerns about Balenciaga too
UBS is also concerned that the recent controversy surrounding Balenciaga, another Kering house, will affect the figures. The brand was recently accused of sexualizing children in a campaign. This led the artistic director, Demna Gvasalia, to apologize, assuring that if he had sometimes wanted to provoke, he had “never intended to do so with a subject as horrible as child abuse”. Kim Kardashian had also announced that she intended to reassess her partnership with the brand following this controversy.
UBS estimates that Balenciaga could see a drop in its “mid-single digit” sales, that is to say around 5% next year, which would weigh on the “other houses” division of Kering. The Swiss bank has thus slashed its forecasts for this group, anticipating organic growth of 6% next year and an operating margin of 14%, against an increase of 9% and a margin of 17.5% previously.
Julien Marion – ©2022 BFM Bourse
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