Kering Challenges Persist as Analysts Adjust Expectations

Author: Ryan Hughes Updated: 09-20-2024 09:40 AM

Kering Faces Uphill Battle in Luxury Market

Kering (EPA: PRTP), renowned for its iconic Gucci brand, is currently navigating a challenging landscape within the luxury sector. Analysts from Morgan Stanley have projected that the company’s underperformance will persist for an extended period, particularly citing the struggles of Gucci's brand recovery which may take another 2-3 years to realize significant improvement.

Sales Decline and Market Adjustments

Recent findings indicate that Kering's overall sales declined by 11% year-on-year in the second quarter, which is particularly concerning for stakeholders. The luxury market, while traditionally resilient, has shown signs of vulnerability, and Gucci's revenue has taken a significant hit—recording a 20% drop in the first half of 2024 to approximately €4.1 billion. This drop can largely be attributed to a decrease of 20% in retail sales at directly operated stores.

Analysts' Revised Earnings Forecasts

In response to these troubling figures, Morgan Stanley has reviewed its financial outlook for Kering, making notable adjustments. Their analysts have reduced the earnings per share (EPS) forecasts for 2024 and 2025 by 5% and 6% respectively. Furthermore, expectations for Gucci’s performance in the third and fourth quarters have also been lowered, primarily due to softer demand from Chinese customers, both domestically and globally.

Brand Performance and Future Launches

Despite these challenges, there is a glimmer of hope as Gucci recently introduced a new handbag line, 'Emblem', in September, with additional product launches planned for the fourth quarter. However, analysts remain cautious, noting that any upswing in sales might be delayed following the launch of new products.

Management Guidance and Market Reactions

Kering management provided its guidance for fiscal year 2024 in mid-July, a month before trends started deteriorating significantly. Morgan Stanley has since expressed their concerns regarding the company's guidance for the latter half of 2024, expecting sales to dip by 8% and EBIT to contract by 35%, as opposed to the previously suggested EBIT decline of 30%.

Industry Insights and Opinions

Industry contacts in China suggest that the path to recovery for Gucci will not be quick, estimating an additional 2-3 years before the brand regains its former strength in the market. This insight adds a layer of caution to Kering's future prospects.

Stock Performance and Outlook

In light of these developments, Morgan Stanley has reaffirmed its 'equal weight' rating for Kering, but with the stock's 12-month target price being revised down to €265, a decrease from the previous estimate of €310. Market reactions have been immediate, with Kering's stock price showing a decline of 3.2% to €225.65 early in the trading session.

Frequently Asked Questions

What challenges is Kering currently facing?

Kering is experiencing significant sales declines, particularly within its flagship brand, Gucci, which has seen reduced retail sales and overall revenue drop.

How have analysts adjusted their forecasts for Kering?

Morgan Stanley has cut Kering's earnings estimates for 2024 and 2025 by 5% and 6%, respectively, anticipating continued struggles within the luxury market.

What is the projected timeline for Gucci's recovery?

Analysts suggest that Gucci's brand turnaround is expected to take an additional 2-3 years before it can stabilize and regain consumer confidence.

What was the impact of recent product launches by Gucci?

Gucci launched a new handbag line called 'Emblem' recently, but analysts warn that sales uptakes from new launches often lag behind initial releases.

How did the stock market react to recent news about Kering?

In response to the revised forecasts and continuing market challenges, Kering's stock price fell by 3.2%, reflecting investor concerns.

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