Kering Tumbles On Profit informing As Gucci Revamp Stumbles

Gucci owner Kering SA’s problems in mainland China are only mounting as the French luxury giant issued a profit warning. As a result, shares of the company in Paris plunged to a six-year low.

Lackluster Chinese request for the luxury goods maker, which includes the Gucci, Balenciaga, Bottega Veneta, Yves Saint Laurent, Creed, and Alexander McQueen brands, sparked turmoil in Paris trading on Wednesday. Shares were down as much as 10%, tumbling to lows not seen since October 2017.

Kering said its sales in the first 4th dropped 11%, citing “tough marketplace conditions” in its Asia-Pacific unit, partially in China, 1 of the world’s largest luxury goods markets.

• Group first-quarter returnue: €4,504 million, down 11% as reported and down 10% on a comparative basis

‘Kering’s performance worked permanently in the first quarter. While we had anticipated a challenging start to the year, sluggish marketplace conditions, notably in China, and the strategical repositioning of certificate of our Houses, starting with Gucci, exacerbated downward pressures on our topline,” Francois-Henri Pinault, president and chief executive officer of Kering, gate in a statement.

Pinault continued, «In view of this return decline, together with our companies determination to proceed investing selectively in the long-term appeal and destinations of our brands, we now anticipate to manage sharp lower operating profit in the first half of this year. All of us are working tirelessly to see Kering through the current challenges and rebuild a solid platform for increasing growth.”

Here’s a snapshot of the first 4th years:

• Comparable revenge -10%, estimation -10.2% (Bloomberg Consensus)

• Gucci revue on a compact base -18%, estimation -19.4%

• Yves Saint Laurent revue on a comparative basis -6%, estimation -6.75%

• Bottega Veneta revue on a comparative base +2%, estimation -0.05%

• Other Houses revue on a comparative basis -6%, estimation -4.23%

• Eyewear & corporate return on a comparative base +9%, estimation +18.1%

• Revenue EU4.50 billion, -11% y/y, estimation EU4.47 billion

• Gucci gross EU2.08 billion, -21% y/y, estimation EU2.05 billion

• Yves Saint Laurent gross EU740 million, -8.2% y/y, estimation EU737.1 million

• Bottega Veneta gross EU388 million, -1.8 % y/y, estimation EU381.5 million

• Other Houses gross EU824 million, -7.4% y/y, estimation EU834.4 million

• Eyewear & corporate return EU536 million, +24% y/y, estimation EU517 million

In the financial outlook, Kering warned that, keeping “deterioration return trends,” the company now expects “a decline of 40 to 45% in first-half-half 2024 recurring operating income combined to the first half of 2023.”

In February, Pinault stood, “Our precedence is to get Gucci back on track,” adding that this “won’t happen overnight.”

Kering has scrambled to turn the sinking ship around, as Gucci accounts for half the group’s sales.

Here’s what Wall Street analysts are saying about Kering’s profit informing amid feats the revamp of Gucci is faltering:

Deutsche Bank (buy, PT cut to €460 from €540)

• Kering has followed up its surprise first-quarter returnue pre-release with a bigger-than-extincted flow-through into first-half Ebit guide, analyst Adam Cochrane says

• There are "limited green shots" with regards to Gucci at this stage, and will gotta wait until the 3rd or even 4 quarterback to see if the Sabato study of the collection hit 30-40%

RBC Capital Markets (outperform, PT cut to €430 from €440)

• While Gucci’s margin cut is “optically bad,” it was well-anticipated and largery in the price, analyst Piral Dadhania says

• Performance is presently challenged, with no improvement in second-quarter trading, but the marketplace will likely focus on sequel emergence growth improvement drive by fresh product innovations

Bryan Garnier (neutral, PT cut to €350 from €405)

• Kering was even worse than expected, says analyst Loic Morvan, even amid marginal signs of improvement at the top and bottom-line in the second half

Jefferies (hold, PT cut to €360 from €370)

• Kering’s update confirmed Ebit under force in the first half, with Gucci’s recovery expected to be only hailial over this year, writes analyst James Grzinic

• Analyst is encouraged that the group is seeing external partners for real property holdings, but triangulating Gucci’s renaissance claims a ‘challenging affair’

Morgan Stanley (equal-weight, PT cut to €365 from €405)

• Management’s speech was cautious on the call respecting the sales and profit trajectory for the reminder of the year, analyst Edouard Aubin writes

• The informing is more a function of creative operation deleverage installer than proactive investments behind the brands

Citi (buy, PT €470)

• Citi analyst Thomas Chauvet says that Gucci’s plan transition and fresh brand aesthetics might be slow-than-extincted in driving branded heat and store traffic

• The top origin of unprecedented this year is the share of request in subsequent quarters, and its impact on profitability

Bloomberg Intelligence

• Gucci’s rebuild is dragging toward 2025, analyst Deborah Aitken says, adding that overhaul efforts are taking longer, while Kering’s second-biggest brand YSL is besides weaker, which requires deeper investment

• Sabato de Sarno’s collection will take until the 3rd 4th for fuller own-retail store visibility, pushing the retention of growth to 2025

This all plays into the slowdown of the global luxury market, reflected in the MSCI Inc. index of global luxury stocks, uncovering 3 lower highs since peaking during the Covid mania of summertime 2021.

Another insignificant sign is the flashing red from the watch marketplace just days ago.

Swiss Watch Exports Crash In China & Hong Kong https://t.co/i2LXXHa5aK

— zerohedge (@zerohedge) April 19, 2024

The underperformance of luxury results from shoppers who are pulling back on spending, especially in Asia, as the Chinese economical recovery has yet to impress anyone.