Kering: With luxury slowing, concerns are growing over Kering’s recovery

(BFM Bourse) – Royal Bank of Canada and Barclays both lowered their advice on the parent company of Gucci on Monday, judging that the slowdown in luxury makes the task of the group’s management even more difficult.

Kering is on the mend. The luxury group is currently undergoing a year of transition, with new items arriving very gradually in its stores over the past few months. This is in order to breathe new life into its flagship brands, Gucci in particular. The Italian label has started to introduce products from the first collections of its new creative director, Sabato de Sarno.

This creative transition is weighing on its business, especially as it is occurring in a context of a pronounced slowdown in demand for luxury products. In the first half of the year, Kering’s revenues fell by 11% on a comparable basis while its current operating profit plunged by 42%.

The company expects a change in the trend of activity in the second half of the year, during which the new products from Sabato di Sarno will be much more widely deployed in stores.

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A delayed recovery

But research firms are cautious about this recovery. On Monday, two of them lowered their opinion on the stock. Royal Bank of Canada went from “outperform” to “sector performance” with a price target lowered to 290 euros from 310 euros, while Barclays revised its advice to “underperform” from “in line performance” and its price target to 276 euros from 210 euros.

On the Paris Stock Exchange, Kering is suffering a little from these two changes in recommendations. The share price fell by 3.7% on Monday at around 10:45 a.m., while the CAC 40 is moving quite clearly upwards (+0.5%).

“We believe the luxury environment is gradually slowing, which should have a significant impact on Gucci, given that it is currently straddling the old and new product mix as it moves toward a new design aesthetic,” writes Royal Bank of Canada (RBC).

“As a result, we believe the potential recovery time frame continues to lengthen and our estimates do not anticipate Gucci returning to positive revenue growth before the second half of 2025,” the Canadian bank said.

Through mid-2025, RBC sees Gucci underperforming luxury growth, and expects its revenues to grow by just 1% in 2025 on a comparable basis, versus a consensus of 5%, after falling 10% in 2024.

Certainly, the Canadian establishment considers that Gucci has taken the right initiatives and made the right changes in terms of positioning and products. “However, we believe that these effects will take time given the expected ramp-up of the new product mix (with approximately 35-40% new products by the end of fiscal 2024),” the bank argues.

China remains a thorn in Gucci’s side

Barclays, for its part, downgraded its opinion following a trip to China. The British bank’s analysts realized that the Gucci brand continued to suffer heavily in the country, much more than its rivals. The expert feedback collected by the establishment is not good, with Barclays writing that these specialists are “quite pessimistic about the potential impact of the new Gucci product offering.”

“In this context, and as China’s macroeconomic environment looks set to continue to deteriorate, we believe Gucci’s recovery could be delayed and we do not expect other brands (Saint Laurent, Bottega Veneta, Balenciaga) to significantly offset Gucci’s weakness,” Barclays warns.

As a result, Barclays believes that consensus expectations for Kering are too high and believes that forecast cuts are possible. The bank expects revenues to decline by 13% at Kering in the third quarter and 11% in the fourth, and by 23% and 19% at Gucci.

And for 2025, Barclays is pessimistic, anticipating a 6% decline in like-for-like revenues at Gucci, while the consensus is for a 5% increase.

“Given our more cautious view on China, we believe Gucci is likely to face another challenging year in fiscal 2025,” Barclays said.

“Gucci appears to be particularly affected by the Chinese slowdown. As consumers become more selective in this environment and focus on brands with high desirability/exclusivity or high brand awareness, it could be difficult for Gucci to gain market share,” the bank continued.

Julien Marion – ©2024 BFM Bourse