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Gucci sales increasingly difficult to forecast; we have -11% organic for FY24 (cons -5%) On 19 March, Kering issued a press release saying 1Q24 sales were expected down c10% at constant fx y/y with Gucci down c20%. The magnitude of the deterioration at Gucci could mean it is now losing former designer Michele''s customer fan base. This could continue for several quarters before new designer de Sarno potentially manages to recruit his own customers. We say ''potentially'' as the jury is out on whether Gucci would not have been better off finding a designer able to make the brand fashionable again rather than more timeless. Assuming Gucci Retail sales only slightly improve on a 5yr-stack basis from the 1Q level (from -5% to -3% in 4Q24), we now forecast Gucci down -11% organic in FY24 (with retail down 12%, wholesale flat). FY24 group EBIT now seen down 23% y/y with Gucci margin at 25.6% (-750bp y/y) Guidance provided during the FY23 publication on 8 Feb already triggered significant downgrades, which some investors/brokers hoped would be the last. When Kering reports 1Q24 sales on 23 April, we expect the group to be more granular regarding its FY24 group EBIT guidance - currently expected ''down y/y''. Taking into account our above-mentioned revised Gucci sales forecast (-11% organic) and assuming a 200bp GM deterioration (-100bp FX and -100bp markdowns/inventory depreciations) and a 70% fixed cost base rising 3% reported (5% at constant FX), we get to a 25.6% EBIT margin for Gucci, and a group EBIT of EUR3,684m, down 23% y/y and a 19.8% margin. Talking to investors, a new concern is emerging: financial gearing After our c18% estimates cut, we are now again c11% below consensus. On top of that, we have to take into account another real estate deal of EUR1.3bn in Milan. We estimate net debt end-2024e at EUR10.5bn (EUR19.6bn IFRS 16), so 3.5x net debt/adj. EBITDA (2.4x pre-IFRS). Note this does not include the commitment to buy 70% remaining stake in...
Kering Kering SA
There is a common conception that Luxury is all about China. Many also think that growth in US Luxury is simply a post-Covid phenomenon. But we believe there is reason to be bullish on the US opportunity. The US ranks 2nd in terms of growth contribution after China and remains an under-penetrated market for Luxury, making up only 21% of sales despite holding 33% of global wealth. US propensity to buy Luxury is significantly lower than Europeans and Chinese, but the gap should narrow with demographic and sociological changes. Our bullish stance on US Luxury demand is supportive of the sector but brands'' success in the US is not a given. Richemont, Moncler and Prada are our preferred plays.
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US buy side expectations have come up vs a month ago We spent last week meeting investors in the US. Since we were already there a month ago (see our feedback report from that trip), it is interesting to analyze how the mindset of investors has changed. Since our previous trip, Moncler, Prada and Brunello have made positive comments about Jan-Feb, notably with regards to Chinese New Year, the US cluster and Japan. What transpired from our meetings is that many investors are extrapolating these trends to the broader sector. We discussed at length why Brunello and Moncler (still small and operating on niches with limited competition), Prada Group (stellar growth at Miu Miu, ongoing recovery at Prada brand) and Hermes (8-9% price increase, waiting lists on c40% of its offering) could still defy gravity in 1Q24. Even the Kering warning on Tuesday, ie the second day of our trip, did not seem to calm down people''s enthusiasm that much. On LVMH notably, our 1% organic growth forecast for Fashion and Leather in 1Q24 (see our preview) was often perceived as conservative. Our response to that was there is as much downside (30% probability of a negative figure) as there is upside. In almost all meetings, we discussed how the market would react to a negative 1Q24 organic print at LVMH FandL and it appeared US investors are now less relaxed about it. Compared to Europe, more US investors thought the Kering warning on 8 Feb was the last one In our 14 March report, we outlined several investors had welcomed Kering''s 8 Feb warning on 2024 EBIT as a ''clearing event''/''the last downgrade''. From our conversations, it seems this constructive view was more widespread among US investors. Since Kering came out on 19 March with a relatively short press release and no update of its FY24 EBIT guidance and did not hold a conference call, investors'' key questions were: (i) what has been the cause of such a deterioration at Gucci since 8 Feb and (ii) to what kind of FY24 EBIT...
Brand momentum and popularity are key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute data on brand heat. What''s new on Luxury EDGE Strong momentum at VCandA, Cartier, Chanel, Hermes, Rolex and Boss. February was about Fashion Weeks and advertising the Spring Festival season. WeChat: Boss, SL and Chanel increased their popularity the most in the last 3m Brands that increased their average reads the most on a rolling 3m basis were Hugo Boss, Saint Laurent and Chanel. Omega and Cartier were ranked #1 in our luxury panel. In Jewellery, Cartier was strong. Tiffany''s popularity was down. In Leather Goods, LV was 1st but reads were slightly below 100k in Feb (last time this happened was Jan-23). Gucci''s popularity was up. We flag incredibly good popularity (ie WeChat reads) at Chanel and Hermes, both up triple digits in February y/y. Our panel''s average reads increased by 2% over the last three months (+7% in Feb). In terms of engagement, Tod''s, Gucci and Zegna were above sample median in the month. Baidu: Increase in search volume in February for Rolex Highest search volume in February was for LV, followed by Rolex, Chanel and Dior. Search volume was up 100% in Feb y/y for Rolex. Strongest y/y drop at LV, Bulgari and Celine. We note sequential improvements at Tod''s, Gucci, Omega, SL, Dior and BV. Google: VCandA reached a new peak in terms of search volumes In February, VCandA reached a new peak in terms of search volumes. Strongest m/m improvement was at Valentino and strongest y/y improvement was at VCandA, while Ferragamo was down the most. LV continues to be closer to its peak than Gucci.
2024 estimates were indeed too high Early December 2023, within our 2024 sector outlook, we made the case that 2024 consensus estimates for Kering were 15% too high, and on 19 January 2024, in a company-specific report, we stated the downside risk was still c10%. On 8 February 2024, Kering provided various elements of guidance which, put together, point to an overall group EBIT of EUR4.4bn for 2024, 10% below consensus and in line with our estimate at the time. Yet, Kering shares are now 9% higher than the evening before FY23 release, which tends to indicate that some investors took this profit warning as a ''clearing event'' limiting further earnings downside. Not more advanced in terms of fundamentals While we appreciate that 2024 consensus estimates are now more realistic (we are now broadly in line with consensus), we argue that the only positive elements from the FY23 publication were slightly better organic trends at BV and ''other'' brands. Gucci''s new designer products only started to hit stores in February and when management mentioned 100% of the in-store offering being from Sabato de Sarno by June, it was referring to 100% of the newness (so c30% of total offering, with the remaining c70% - carryovers - being worked on later). Saint Laurent top line was still weak, Alexander McQueen was loss making, and Jean-Francois Palus was named Gucci''s permanent CEO - the latest in a series of management changes that some investors have found difficult to read. Relative risk/reward still not attractive post re-rating We raise our DCF-based TP to EUR460 (from EUR440) as the rollover by one year more than offsets slightly lower estimates. Post the double-digit consensus estimate cut and share price rebound, Kering has re-rated to 17.7x 12-month fwd P/E, a discount to peers (notably 32% vs LVMH), which we believe is warranted in light of the stock''s higher risk profile. Next event: 1Q24 sales on 23 April.
Many investors are puzzled by how strong Luxury shares have been y-t-d and wondering what to do next Alongside roadshowing Pandora CEO to New York and Toronto last week (see key takeaways), we also met investors in these two cities. In almost all meetings, investors were asking why the luxury sector outperformed massively y-t-d despite consensus estimates only modestly increasing post 4Q23 results. Even bullish investors seem to consider the sector re-rating happened a bit early or/and was too sharp. Whilst at the very beginning of 2024, many investors seemed ready to absorb a flat organic sales growth in 1Q24 for assets with no brand heat issues such as LVMH Fashion and Leather or Richemont Jewellery Maisons, they are now mentioning a higher bar. As a reminder, a low single digit organic growth would likely require a confirmation that Chinese New Year was robust (so far, we only saw some supporting travel data) and some improvement elsewhere (likely in US if it happens). For more long-term investors, the discussion was about what a New Normal could look like once the inevitable normalization is behind us: on that topic, we felt a bit less pushback on our thesis the New Normal (2025-2034) should be higher than the Old Normal (2010-2019) which saw 8% organic sector CAGR (see page 18 of our 2024 Deluxe Outlook). Investors are more constructive on Richemont, welcoming LVMH margin protection, not that focused on Kering With regards to stock-specific discussions, investors appear less concerned by the idea that Richemont would be less resilient during the ongoing sector normalization. However, the group''s ability to exit YNAP and how it will use its cash pile still arose. On LVMH, we got fewer questions than in other regions about Dior no longer outperforming the Fashion and Leather divisional average. However, the disappointment around Tiffany''s performance was greater. Most investors welcome LVMH''s decision to lower AandP to protect margins and do not...
Consensus estimates have come down, but not enough In our 2024 Outlook report dated 7 Dec 2023, we cut our 2023-25e EPS by 5/22/19%. A week later, in our 15 Dec 4Q/FY23 preview, we cut our estimates by a further 3/2/1%. Even though consensus estimates have come down recently we are still 11% below for 2023-25e EPS (see page 3 for our detailed analysis of our estimates vs VA consensus). We reiterate our Neutral rating on Kering with valuation (15.5x 24 PE) not cheap relative to the rest of our coverage, notably Richemont (17x), Prada (18x), Hugo Boss (12x) and Pandora (15x). Unrealistic expectations on where Gucci EBIT margin could land in 2024 ... During the 3Q23 conf call, management was very clear regarding Gucci EBIT margin in FY23, guided down c200bp y/y. With regards to 2024, talking to investors since then, it appears a vast majority of them understood the Gucci EBIT margin would not go down much further. We rather focused on the word ''prudent'' used by management regarding its trajectory. On top of finding consensus expectation of 3% organic sales growth for Gucci in FY24 too optimistic (we have 1%), we believe even 3% would not be enough to avoid negative opex leverage and that''s even before considering the FX impact (from a c100bp tailwind to at least a c100bp headwind) and the necessity to support new Artistic Director de Sarno''s new products. We thus forecast a 280bp EBIT margin deterioration at Gucci to 30.5% in 2024 (consensus 32.1%) following a 230bp deterioration to 33.3% in 2023. ... as well as on the rest of the portfolio In 3Q23, Saint Laurent, BV and ''other''s (incl. Balenciaga) already posted negative Retail performances, thus significatively underperforming the +7% sector average due to brand heat issues unlikely to be solved short-term. In addition, these brands will undergo a c30% Wholesale decline in 1H24 (self-inflicted rationalisation, image enhancing MT but margin dilutive ST) and suffer FX headwinds similar to Gucci. In...
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Strong momentum at Cartier, Boss, Chanel, Omega, Bvlgari. Gucci and Burberry are improving. November was rhythmed by the Double 11 shopping day in China (ie. Single''s Day), the online equivalent of Black Friday. See page 7 of this report for some snippets. WeChat: Boss, Chanel and Burberry have increased their popularity the most in the last 3m Brands that increased their average reads the most on a rolling 3m basis were Hugo Boss, Chanel and Burberry. LV, Omega and Cartier were ranked #1 in our luxury panel, with 100k+ average reads in November. In Jewellery, Cartier was strong (100k+ in Nov), up +21% y/y. In Leather Goods, Gucci''s popularity was again up y/y (+15%) after +56% in October. At other Kering brands, Balenciaga and BV were down 29% and 18% in the last three months (-24% and -10% respectively in November) whilst Saint Laurent was up 30% (but -59% in November, worst performer y/y). Our panel''s average reads increased by 5% over the last three months (and in November). Baidu: Strongest increase in search volume in November for Moncler and Boss Louis Vuitton remains the most searched brand followed by Rolex, Chanel and Hermes. Moncler search volume was up 32% in November y/y and up 14% for Boss. Strongest drop in November for Hermes and LV. Note the strongest sequential improvement m/m for Moncler (+64%). On a rolling 3m, Rolex, Hugo Boss, Moncler and Zegna were up. Google: Five brands reached a new peak in November In November, Cartier, Hermes, VCandA, Celine and Coach reached a new peak in terms of search volumes. Only Omega and Zegna trends were declining vs October. Best improver y/y was Valentino.
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Lowering 2023-25 EPS by 3/2/1% In our recent Deluxe 2024 Outlook report published on 7 Dec, we downgraded Kering to Neutral (see page 45-47), outlining EPS estimates were (at the time) 1% below consensus for 2023 and 15% below for 2024. After our update call with the company and based on more recent channel checks, we are cutting 2023-25 EPS estimates by 3/2/1%. We are now 5%, 16% and 11% below consensus. 4Q23 top line: could be broadly in line with our forecast, but significantly below consensus At group level, we expect retail trends y/y in 4Q23 in Europe to be quite similar to 3Q (-10%), improving slightly in US (-21% in 3Q), normalising from a very high base in Japan (+28% in 3Q) and disappointing in Asia in spite of the easier basis of comparison in China. Wholesale could be a bit worse, with Gucci flat to slightly up, but down c30-35% at SL, BV and Others. FX should have a 3-4% negative impact on group top line. By brand in Retail in 4Q, we forecast Gucci down 5% (unchanged), SL down 2% (unchanged), BV +2% (vs flat), Others down 5% (-7% previously). For the group as a whole, we forecast sales down 6% organically (VA consensus: -1% for Group); For Gucci specifically, consensus still expects a significant sequential acceleration from -7% in 3Q to flat in 4Q, which we believe is unrealistic. See page 3 for detailed forecasts. FY23 EBIT: 2H23 margin decline likely worse than anticipated The EBIT margin outlook seems to have deteriorated, based on a more precise analysis of negative opex deleverage, with the exception of SL. We are now forecasting FY23 group EBIT margin at 24.4% (25.1% previously), implying a 500bp y/y deterioration to 21.6% in 2H23. As a reminder, we believe 2024 EBIT margin forecasts are way too high, for Gucci but also the rest of the portfolio. We reiterate our Neutral rating on Kering with valuation (19x 2024 and 16x 2025 PE on our below consensus estimates) not cheap relative to the rest of our coverage, notably Richemont...
Visibility at a low point, but reasons to remain constructive on some luxury stocks Quoting LVMH CFO Guiony, visibility in Luxury never goes beyond yesterday''s sales. 2024 is even more difficult to predict since (i) it is about a normalisation after an un-precedented 3yr supercycle, and (ii) even the most sophisticated marketing departments still struggle to understand how much of this supercycle was driven by cyclical elements as opposed to structural trends. However, there is enough ''soft evidence'' of long-lasting factors such as brands successfully re-engaging with Western clienteles, luxury now being perceived as an investment, and untapped potential with emerging clienteles (starting with China) for (i) this ''digestion'' phase to be limited in duration and magnitude, and (ii) after that, the New Normal to be at least as strong as the Old Normal (8% sector growth). 2024 likely to be a game of two-halves Luxury started to normalise in 3Q23 (up 7% org.). 4Q23 could see an artificial stabilisation to 8%, driven by easier comps in China vs 3Q23. Talking to investors recently, their focus is already on how soft 1H24 could be and whether 2H24 could see a rebound. Our scenario is for sector growth to slow to 6% organic in 2024 after 13% in 2023, with 3% 1H24 and 8% in 2H24. Our key 2024 assumptions are that (i) Chinese demand will still be up c10% (more for desirable brands), and (ii) the rest of the world will need a ''digestion'' period of 4-6 quarters rather than a hard reset. Richemont preferred large cap / Kering (d/g to =), Prada (u/g to +) Short-term catalysts are lacking, but Luxury is about anticipating; we expect investors will not wait for the last downgrade to invest. Richemont is the large cap offering the best risk/reward. We see no brand heat issue for key brands at LVMH, Moncler and Prada (u/g to + on more attractive valuation). Amongst stocks with idiosyncratic drivers, we favour Pandora and H. Boss, structurally strengthened by...
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Strong momentum at LV, Omega, Cartier, VCandA, Hugo Boss and Chanel. Saint Laurent and Gucci seem to be improving. In this report, we have included historical data charts by brand: check it out! WeChat: Boss, SL and Zegna have increased their popularity the most in the last 3m Brands that increased their average reads the most on a rolling 3m basis were Hugo Boss, Saint Laurent, and Zegna. LV and Omega were ranked #1 in our luxury panel, with 100k+ average reads in October for a fourth month in a row. In Jewellery, Cartier was strong whilst Tiffany''s popularity faded. In Leather Goods, Gucci''s popularity bounced nicely (halo effect from Ancora show and push on Horsebit loafers and handbag). Our panel''s average reads increased by 7% over the last three months (+3% in Oct). Baidu: Strongest increase in search volume in October for Rolex Louis Vuitton remains the most searched brand followed by Rolex, Chanel and Hermes. Rolex search volume were up 30% in October y/y. Strongest drop in October for Hermes and LV. Note the strongest sequential improvement m/m for Moncler and Hugo Boss. On a rolling 3m, only Rolex and Omega were up. Google: Van Cleef and Arpels reached another new peak in October VCandA reached a new peak in terms of search volumes with a ''hit level'' x2 higher than previous year. Best improver was Valentino (+230% y/y). Momentum at Balenciaga keeps on declining. Finally, LV continues to be closer to its peak than Gucci.
Brand momentum and popularity are key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Strong momentum at LV, Omega, Cartier, VCandA, Hugo Boss and Chanel. Key highlights from September: Spring Summer 24 shows. See inside some snippets from the Chinese mid-autumn festival (''Golden Week'') lasting from 29 Sept to 6 Oct. WeChat: Hugo Boss, Omega, and Chanel have increased their popularity the most in 3Q LV and Omega were ranked #1 in our luxury panel, with 100k+ average reads both in September and in 3Q. In Jewellery, Cartier was strong (98k in 3Q) vs Tiffany at 78k. In Leather Goods, Gucci''s popularity bounced by +24% in September (supported by 22 Sept Gucci Ancora activations) though 3Q was still below the previous year (-14%). Our panel''s average reads (i.e. popularity) increased by 3% in 3Q on average (+8% in September). Baidu: Strongest increase in search volume in 3Q for Rolex and Bulgari Louis Vuitton remains the most searched brand followed by Rolex, Chanel and Omega. Rolex search volume was up 73% in September y/y (similarly to 3Q). Strongest drop in September was for Cartier and Hermes. Note the strongest sequential improvement m/m was for Hugo Boss. In 3Q, Rolex, Bulgari and Omega were up whilst the bottom three includes Dior, LV and Cartier. Google: VCandA reached another new peak in September In September, VCandA reached a new peak in terms of search volumes. Most improved was Cucinelli (+70% y/y). Celine is still trending strongly. Momentum at Balenciaga keeps on declining. Moncler also appears weak (partially explained by comping its 70th anniversary activations last year). It appears that Google Trends rebased the LV searches this month. Hit level difference between Gucci and LV since common peak of Dec-21 seems more pronounced (see Figure 26).
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Kering reported Q3 2023 revenue below expectations, showing sales declines across all its brands. The decline was particularly driven by a greater fall-off in the wholesale activities due to the strategic wholesale rationalization. Overall revenue was significantly impacted by weakening local demand from aspirational customers in North America and Europe. Given the current revenue contraction, Kering anticipates a lower EBIT margin for Gucci for this year vs. FY22, and does not expect a margin improvement for Gucci in 2024.
First Sabato de Sarno Fashion not a catalyst so far In our 19 Sep report Mgt changes and 22 September Fashion Show vs negative 3Q, we outlined how Kering''s share price could be more influenced by reactions to Gucci new Artistic Director first collection on 22 Sep than by the 3Q23 publication on 24 Oct. Some two weeks later, Kering shares have lost c10%. In the same period, LVMH has lost c5% on general concerns about Luxury, but still, it is fair to say this new collection was not a short-term positive catalyst. In our Luxury EDGE Special Edition dated 27 Sep, we collected some initial social media data on this collection. In terms of overall feedback (media + investors), we felt it was overall slightly positive: whilst for several people there was not enough risk taking and no ''wow'' effect, more people welcomed the return to a more classic approach, the work on the silhouettes and the fabrics, the re-interpretation of the Jackie bag, Bamboo and the introduction of some new products and brand codes (the platform shoe, a new bag, the Bordeaux colour). In our view, the new aesthetics introduced by de Sarno seemed in line with the strategic shift presented by CEO Francois-Henri Pinault a bit more than a year ago at the June 2022 CMD: making Gucci more balanced between timeless and fashion. 3Q due 24 Oct: Kering group organic sales seen down 9% with Gucci down 8% In the above-mentioned 19 Sep report, we also flagged we were forecasting a 2% decline at Gucci for 3Q (vs VA consensus of +2% at the time) and did not rule out a much steeper decline. Closer to release date, we now forecast an 8% decline at Gucci (vs VA consensus at 0%). In retail, BV and SL should be better (+1% and -1% respectively) but significantly impacted by wholesale rationalisation (-39% and -35% in 3Q respectively). Balenciaga should continue to underperform the rest of the portfolio (impacted by 4Q22 controversy, especially in the US). Detailed preview on page 3. TP lowered...
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Strong momentum at LV, Omega, Hugo Boss and Chanel. Key highlights from August: Qixi (Valentine''s Day, 22nd Aug) campaigns and FW collection advertisements ahead of Fashion Weeks in September (SS collections). WeChat: HB, Omega and Chanel have increased their popularity the most in the last 3m Brands that increased their average reads the most on a rolling 3m basis were Hugo Boss, Omega and Chanel. In August, the #1 spot was shared between LV, Cartier and Omega (100k+ reads). In Leather Goods, BV, Balenciaga and Gucci were down DDs in August (vs Dior and Celine up DDs). Engagement at Coach and MK were the weakest. Our panel''s average reads decreased by 3% over the last three months (+9% in August). Baidu: Only Rolex and Moncler search volume were up in August y/y On Baidu, LV remains the most searched brand followed by Rolex, Chanel and Hermes. Rolex search volume were up 64% in August y/y (+80% 3m). Strongest drop in August for Hermes (-51%). On a rolling 3m, Rolex, Bulgari and Moncler were up. Bottom three: Cartier, LV and Gucci. Google: VCandA reached another new peak in August In August, VCandA reached a new peak in terms of search volumes with a ''hit level'' almost 2x higher than Aug-22. Second best improver was Cucinelli (+36% y/y). Rolex and Celine are still trending strongly. Momentum at Tod''s is fading and Ferragamo hit level was 31% below a year ago. LV and Gucci are both approximatively halfway of their respective peak. What conclusions do we draw? ML China remains a key focus. Hard Luxury still performing well. In Leather, ongoing strengths at LV and Chanel. Gucci not showing signs of improvement in August. Hugo Boss standing out.
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. De Sarno''s debut Gucci show In this special edition around Sabato De Sarno''s debut show for Gucci - we dive into some social media performance data around the Gucci Ancora Spring Summer 24 show that took place in Milan on 22 Sept. during the Fashion Week. Our analysis was powered by our long-standing partner Curiosity China by Farfetch, leveraging data across 4 main social platforms (Weibo, WeChat, RED, Douyin). Sentiment was positive Sentiment of social media posts around the show was high as was the sentiment of comments under official posts (slightly above average for a luxury brand campaign). Most of the positive feedback was driven by fans expressing love for celebrities and looking forward to the show. The style and design of the new Ancora collection sparked some debate although most people made positive comments. Investment building buzz What is certain is that the show generated a lot of buzz, which in itself is a good thing. Gucci made significant investments in marketing across its Chinese social media platforms in order to build momentum around the event.
3Q23 on 24 Oct is about how negative Gucci could be. However, Kering''s share price could be more influenced by reactions to Gucci new Artistic Director de Sarno''s first collection on 22 Sep. We also outline potential for recent management to trigger cost savings at Gucci, mitigating marketing needs. How negative could 3Q23 be? Does it matter now? We are forecasting a 2% organic sales decline at Gucci for 3Q following a 1% increase in 2Q. Whilst we are 4 ppts below VA consensus for 3Q (+2% organic), the 3ppts sequential slowdown vs 2Q embedded in our estimate is still much less than the 10+ ppts deceleration we forecast for most peers. What prevents us from being more negative is our 4 yr-stack analysis pointing to an easier comparison basis for Gucci specifically for 3Q. If the ''easier comp'' angle does not work, a much steeper sales decline cannot be ruled out. We also expect Saint Laurent, BV and Others to be negative in 3Q organically. Our 2023-25e EPS estimates are unchanged and 4% below consensus. First Sabato de Sarno Fashion Show on 22 Sep: how significant? A 3Q ''shocker'' on 24 Oct would likely mean FY23 margin downgrades as well. However, in terms of share price performance, this publication could be considered as backward looking, notably with new Artistic Director de Sarno presenting his first collection on 22 Sep. First collections of new designers sometimes generate mixed initial reactions, and press reaction is not always a proxy for the commerciality of a collection. However, this first collection will definitely impact investors'' perception of de Sarno''s capacity to trigger an inflexion in Gucci''s aesthetics. Could Gucci''s margin reset be mitigated by cost savings? On 18 July, our initial reaction to management changes was positive, to a certain extent. Our preferred scenario would have been to see Francesca Bellettini promoted from YSL CEO to Gucci CEO. However, with ''interim'' CEO Jean-Francois Palus likely to be in charge of...
Kering’s majority shareholder, Artémis (the holding company of the Pinault family) is acquiring a 52% of stake in the American talent agency Creative Artists Agency (CAA) held by the American investment company TPG. Becoming the major shareholder in one of the world’s largest entertainment companies is an important step for the owner of Kering to enter the entertainment world, given that the fashion and entertainment sectors are becoming increasingly connected.
Estimates for 3Q23 have come down, but not enough; 4Q23 and FY24 look OK In our 31 July sector flashnote, we noted that Visible Alpha consensus for 3Q23 sales across our Luxury coverage looked high, whilst 4Q23 and more importantly FY24 were OK. A bit more than one month later, estimates have started to come down. However, based on our recent industry contacts, we believe 3Q estimates need to come down a bit more and converge with our own estimates. For instance, for 3Q23, we forecast 11% organic growth for LVMH FandL (consensus now 13% vs 15% end July), 23% for Moncler Retail (consensus 28%), 10% for Richemont Jewellery Maisons (consensus 12%) and -2% for Gucci (consensus +2%). For Hermes (+14%), we are in line with consensus. A positive element is that FX headwinds in 3Q are now broadly factored in (consensus -7% FX headwind vs -5% estimated end-July, whilst it is -8% based on current spot rates). We also noted in our recent conversations with investors that buyside expectations are now closer to ours. Initial indications about July-Aug in line with our estimates Initial indications for July-Aug seem to support our current 3Q estimates, though note that September is more than 40% of 3Q for Luxury. For Chinese demand, 2Q ranged from very strong to weak (see chart page 2) depending on the company and we believe July-Aug did not see big underlying changes in spite of unsupportive macro headlines. However, the comparison basis will be far less favourable (in 3Q22, Chinese demand was flattish vs down c30% in 2Q22) as there was no Covid in July-August. US demand remained soft, however does not seem to have deteriorated further and consensus has been cautious for a while for the US. The issue thus remains the further normalisation in demand from European, Japanese, Korean, other Asian, and Middle Eastern consumers (which altogether account for c50% of total luxury demand), which still does not appear fully factored in. We remain constructive on...
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Strong momentum at LV, Omega, Hermes, Hugo Boss and Chanel. Key highlights from July: the return of large-scale fashion shows in China and Qixi (Valentine''s Day, 22nd Aug) campaigns. WeChat: Omega, Zegna and Chanel have increased their popularity the most in the last 3m Brands that increased their average reads the most on a rolling 3m basis were Omega, Zegna and Chanel, with improving engagement as well. In July, the #1 spot was shared between LV, Cartier and Omega (100k+ reads). In Leather Goods, Gucci and MK remains weak. In terms of engagement, Zegna and Prada were well above sample median. Our panel''s average reads decreased by 12% over the last three months (-7% in July). Baidu: Strongest increase in search volume in July for Bulgari, Rolex and Prada On Baidu, Louis Vuitton remains the most searched brand followed by Bulgari, Chanel and Dior. Bulgari search volumes were up 129% y/y, 197% q/q and 39% 3m avg y/y. Strongest drop at Gucci, down 44% in July (-51% 3m). On a rolling 3m, Fendi, Rolex, Bulgari, Moncler and Zegna were up. Google: Hermes and VCandA reached new peaks in July In July, Hermes and VCandA reached new peaks in terms of search volumes. For VCandA, volumes were 2x higher than July-22. Second best improver is another jeweller, Tiffany, with searches up 85% y/y. Celine is trending strongly. Momentum at Balenciaga and Tod''s seems to be fading. LV continues to be closer to its peak than Gucci. What conclusions do we draw? ML China remains the key focus for luxury brands. Jewellers are performing well on our screenings, with generalist brands also advertising their jewellery offering (eg. Chanel and LV in July).
1H23 EBIT in line on lowered estimates, 3Q23 a tricky hurdle On estimates which had come down going into the numbers, Kering 1H23 EBIT was in line with consensus and 2% above BNPPE, with stronger Eyewear business mitigating weaker than expected Gucci profits. While no miracle can be expected from Gucci at least before 1Q24, with 1% sales growth in the quarter (vs. +21% at LVMH FandLG), Gucci performance was disappointing in light of several factors: (i) easier comps in China, (ii) a new China CEO finally in a position to visit stores after being prevented to do so by Covid, and (iii) significant merchandising efforts. Retail growth at SL (+8%) and BV (+7%) were lacklustre whilst Other (+9%) was better than feared and Eyewear (+21%) a pleasant surprise. In our 31 July sector flashnote, we outlined 3Q consensus was likely too high for many luxury stocks as we believe some analysts may be undervaluing the tougher basis of comparison in China and the normalisation in demand elsewhere. For Kering, key brands should struggle to show a positive y/y Retail organic growth. Specifically for Retail, we forecast Gucci down 2%, BV down 1%, SL flat, Others up 6% and Eyewear (overall) up 13%. Including impacts from the Wholesale rationalisation, we see group sales down 2% organic in 3Q23. Management changes, Creed, Valentino? Net net slightly positive Recent newsflow has been abundant at Kering and forced the market to take a view on several new topics whilst waiting for Gucci new Artistic Director de Sarno''s first collection to be presented in September. Net net, we believe these changes are slight positives even though not the clear short term catalysts one could have hoped for. If Francesca Bellettini had been named CEO of Gucci rather than group co-CEO, we could have seen almost immediate improvements in execution (based on her impressive track record at YSL). If Kering had disbursed cEUR5bn to acquire a majority stake in Valentino (an acquisition fully in...
3Q luxury consensus likely too high Looking at Visible Alpha consensus for 3Q23 sales across our coverage, estimates look too high in our view. We believe some sell-side analysts may be undervaluing two important points. Point #1: the basis of comparison will be far less favourable in China; in 3Q22, China was flattish vs down 30% in 2Q22, as there was no Covid in July-August. Point #2: whilst the US slowdown seems well understood, the normalisation in demand from European, Japanese, Korean, other Asian, and Middle Eastern customers seen throughout 2Q23 (with slower exit rates) does not appear fully factored in. Focusing only on Chinese and American demand can be misleading as other nationalities altogether account for c50% of total luxury demand. In addition to being too optimistic on 3Q organic growth, consensus factors in c-5% FX headwind, whilst it is -8% in 3Q based on current spot rates. Why do we believe investors should look through it Whilst acknowledging above-mentioned 3Q risk and unfavourable FX moves, we remain constructive on our Outperform-rated Luxury stocks (see table page 2). When companies talk again in September, the comp base in China will have started to become favourable again as Covid impacted China from Sep to Dec 2022. Unlike 3Q estimates, 4Q consensus estimates look fine. 3Q exit rates should look good and 4Q should see a reacceleration on easier comps. More importantly, we believe brands with strong desirability (notably Richemont, LVMH, Moncler and Hermes) can grow at least 10% in 2024. The key learning from the last 3 years has been that Luxury brands were so obsessed by China in the 2010-19 period that they neglected other EM and moreover US and European consumers; we believe this having been corrected could lead to structurally higher MT growth rates. Although counterintuitive, this 2H23 normalisation is actually a good thing for multiples Thanks to the ongoing normalisation of ex-Chinese trends, luxury sector...
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Kering published H1 23 results which were below consensus and our expectations. All major brands experienced softer-than-expected top-line growth in the second quarter due to the ongoing weakness in North America. Encouraging margin progressions of YSL and Bottega Veneta were offset by the negative leverage at Gucci and Balenciaga. The group expects the leadership reshuffle to accelerate Gucci’s turnaround and confirm the brand’s medium-term targets. In parallel, the group reached an agreement to buy a 30% shareholding in Valentino for a cash consideration of €1.7bn.
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Strong momentum at LV, Omega, Dior, Rolex, Zegna and Chanel. Key highlights from June: Paris Fashion Week (SS24 collections) and the 618 Shopping Day in China. WeChat: Omega, Dior and Zegna have increased their popularity the most in 2Q23 In 2Q, Louis Vuitton ranked #1 in our panel, with 100+k reads. Hard luxury was particularly strong, with Omega and Tiffany completing the top 3. Cartier WeChat performance was unusually low in June. In Leather Goods, MK and Gucci remain weak. In terms of engagement, Tod''s, Zegna and Prada were the strongest. Baidu: Strongest increase in search volume in 2Q y/y for Fendi and Rolex Louis Vuitton remains the most searched brand, followed by Rolex, Chanel and Dior. Prada was by far the best sequential improvers in June. In 2Q, average search volumes were declining y/y for most of the brands except Fendi, Rolex, Moncler, VCandA, Zegna and Prada. Google: Hermes and Celine were the brands closest to peak in June In June, Hermes and Celine were the closest to peak while VCandA and DandG improved the most sequentially. We highlight the important contraction at Gucci y/y (strongest of our panel) and Balenciaga. We continue to see LV as closer to peak than Gucci. What conclusions do we draw? Hard luxury brands continue to perform well on our screenings, with generalist brands also pushing their jewellery offering. In Leather, there is ongoing strength at LV, Dior and Hermes. On most metrics, Gucci is not showing signs of improvement.
Kering has decided to replace Marco Bizzarri, Gucci’s CEO since 2015, with the current managing director, Jean-François Palus, for a transitional period from the end of September. The current CEO of the Yves Saint Laurent brand and the group’s CFO will become Co-CEO of Kering group. This leadership reshuffle confirms the group’s determination rapidly to rekindle Gucci, thereby boosting the market’s confidence in Kering.
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new in Luxury EDGE Strong momentum at Cartier, Bulgari, Omega, Fendi, Hermes, Dior and Celine. Key highlights of May: Chinese gifting occasions (Mother''s Day on May 14 and 520 Valentine''s Day on May 20). WeChat: Dior, Hermes and Bulgari have increased their popularity the most Brands that increased their average reads the most on a rolling 3m basis were Dior, Hermes and Bulgari with improving engagement as well. LV was ranked #1 in our luxury panel, with 100+k average reads both in May and on a rolling 3m period (Mar-May). In Hard Luxury, Cartier, Omega, Tiffany and Bulgari were strong. In Leather Goods, Michael Kors and Gucci remain weak ytd. Baidu: Strong increase in May y/y for Fendi. Gucci weak Louis Vuitton remains the most searched brand followed by Chanel, Rolex and Fendi. Fendi''s search volumes were up 194% y/y (+208% MoM). Largest drop at Gucci, down 56% y/y (flat MoM). Google: Celine reached another peak In May, Celine reached a new peak while VCandA was the most improved brand sequentially. Hermes is still trending strongly. LV continues to be closer to its peak than Gucci. What conclusions do we draw? Jewellers continue to perform well on our screenings, with generalist brands also pushing their jewellery offering. On most metrics, Gucci is not showing signs of improvement.
Kering Beauté has announced that it has reached an agreement to acquire 100% of Creed with all-cash from BlackRock. Creed is one of most popular high-end niche fragrance brands in the world, which generated more than €250m in sales and has an attractive EBITDA margin. This deal confirmed Kering’s ambition for the fast-growing luxury beauty market, and it is another good step after appointing Estée Lauder’s former executive Raffaella Cornaggia as CEO of Kering Beauté in February.
1H 23 (due 27 July): Gucci likely only slightly accelerating, rest of group lacklustre We forecast 2Q sales of EUR5.1bn, implying 4% group organic growth. 1H margin should decrease 200bp y/y to 26.4%. Our 1H EBIT estimate (EUR 2,684m) is 5% below current VA consensus. We expect Gucci Retail to accelerate to 5% in 2Q from 1% in 1Q. Easier comps in China should mitigate slower growth in the rest of Asia (notably Korea). Europe should normalise (tougher comps) whilst US should have not got much worse and Japan remained stellar. We expect Saint Laurent Retail to slow to 12% due to the US and rest of Asia being weaker. We expect BV Retail to slightly accelerate to 7% due to China reopening. Other Houses Retail (+7%) should still be impacted by Balenciaga. These Retail trends are likely to have been hampered by ongoing Wholesale normalisation. Let''s be transparent ... Gucci Retail up 5% would be a bit disappointing Gucci being in a transition phase is nothing new: its new designer Sabato de Sarno only joined mid-May and the first products from him will only hit stores in 1Q24. Therefore, no miracle could be expected from Gucci in 2Q. However, if our 5% Retail growth forecast is right, the Gucci performance would be slightly disappointing in light of several factors: (i) easier comps in China, (ii) a new China CEO finally in a position to visit stores after being prevented to do so by Covid, and (iii) significant merchandising efforts. Company guidance of flat Gucci margins in FY23 seems increasingly at risk (we have -100bp), and in contrast to last year, there is not much potential for the rest of the portfolio to offset that (SL normalisation and Balenciaga controversy not fading much). TP lowered to EUR650 on 6% EPS cut for 2023-25e We lower our DCF TP to EUR650 (from EUR700) following our 6% EPS cut for 2023-25e (lower organic growth forecasts (mostly at SL and BV), greater FX headwinds, lowered margins mostly at Gucci and Other Houses). On...
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Strong momentum at Cartier, Bulgari, Dior, Hugo Boss, Cucinelli and Tod''s. Key highlights of April were the significant amounts of pop-up stores opening and exhibitions in China. WeChat: Dior, Hugo Boss and Bulgari increased their popularity the most Brands that increased their average reads the most on a rolling 3m were Dior, Hugo Boss and Bulgari, with engagement improving triple digits. In April, LV was #1. Hard Luxury brands Cartier, Tiffany, Bulgari and Omega were strong as well. In Leather Goods, Gucci remains weak ytd on average reads (popularity on WeChat) down 26% in April y/y. However, its engagement spiked, boosted by the Gucci Cosmos exhibition in Shanghai (Apr 27 - Jun 25) that was live-streamed on WeChat and Weibo. Michael Kors popularity remains extremely weak, down 46% in the last 3m. Baidu: Strong increase in search volume in April y/y for Prada and Rolex. Gucci weak Louis Vuitton remains the most searched brand, followed by Prada, Chanel and Rolex. Prada''s search volumes were up 90% y/y (+33% MoM), Rolex up 71% y/y (+25% MoM). The biggest drop was at Gucci, down 52% y/y (-2% MoM). Google: Most brands improved sequentially in April. Cucinelli and Celine reach new peaks In April, Cucinelli and Celine reached new peaks while VCandA and Cartier were the best improving brands sequentially (after Cucinelli). Hermes is trending strongly. There is no significant drop to highlight this month. We continue to see LV as closer to its peak than Gucci. What conclusions do we draw? Mainland China is the key focus, with luxury brands hoping to capitalize on the reopening. Jewellers continue to perform well, with generalist brands also advertising their jewellery offering.
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Strong momentum at Cartier, VCandA, Bulgari, Dior, Burberry and Celine. March was about FW23 and some SS23 collection shows and advertising. With China lifting its zero-covid policy, top management from luxury brands toured China to meet local teams, stores and attended local events. WeChat: VCandA, Bulgari and Burberry have increased their popularity the most In 1Q, Cartier ranked #1 of our panel. Hard luxury was particularly strong with Omega and Tiffany completing the top three. Brands that increased their average reads the most in 1Q were also jewellers: VCandA and Bulgari (with improving engagement as well). Engagement was strong at Tod''s, Zegna and Prada. Baidu: Increasing search volume in 1Q y/y for Tod''s, Zegna and VCandA Louis Vuitton remains the most searched brand, followed by Chanel, Prada and Rolex. Prada and Rolex were the only sequential improvers. In 1Q, average search volumes were declining y/y for most of the brands except Tod''s, Zegna and VCandA. Google: Celine and Rolex were the brands closest to peak in March In March, Celine and Rolex were the closest to peak while Fendi and Cucinelli improved the most sequentially, though only modestly. VCandA was also trending strongly and is up +28pts y/y, the highest improvement of our panel. We highlight the large contraction at Gucci y/y (-10pts), BV (-9pts) and Ferragamo (-8pts). We continue to see LV as closer to peak than Gucci. What conclusions do we draw? Jewellers performed strongly. In Leather, ongoing strength at Burberry, Dior and Celine. Michael Kors has been weakening year to date, as have Saint Laurent and Fendi.
Kering published a mixed Q1 23 revenue performance, below both consensus and our expectations. The sustained good momentum in Western Europe and the gradual recovery of the Chinese market have been offset by the continued weakness in North America. The group saw a reduction in the number of aspirational customers in the US and relatively softer demand from younger clientele during the quarter. The group said Gucci has achieved good progress, but the group sees the Gucci brand’s elevation “as a journey and a race”.
Evidence of Chinese returning to Europe earlier than expected One of the positive features of having a Luxury Goods Research Team spread between Paris and Milan is we quickly identify store traffic trends in two important tourist hubs. Until Easter, we had only seen few Chinese travellers in Paris or Milan, or for that matter in Geneva, where we attended the Watches and Wonders fair end-March. Moreover, they were usually alone and travelling for work. However, over the last two weeks, we have noticed a significant pick-up in Chinese tourism in both cities, including small groups with a guide. This trend has been confirmed by our local industry contacts, who report that in recent days the Chinese represent the third-largest clientele after the French and the Americans (and sometimes the second largest at stores in tourist areas). Luxury management teams may have been too cautious Even during the most recent quarterly results conference calls, luxury managers reiterated their views expressed in January 2023 that Chinese would not come back before the summer, i.e., in 3Q. Reasons cited were the high number of Chinese having to renew their passports, limited airline capacities and expensive air tickets. It seems either some of these headwinds have been exaggerated or the Chinese are in a ''revenge travel'' frame of mind! What does it mean for earnings estimates? In our February 2023 report, we outlined five reasons why Chinese travel was incremental to overall Chinese luxury consumption pre Covid: more time, gifting culture, more choice, price incentive and ''image'' effect. However, in our estimate upgrades since then, while we factored in higher forecasts for overall Chinese consumption we still considered Chinese travel as neutral (i.e., purchase transfer from China to a tourist destination). In our scenario analysis, we identified a 2% upside risk to global luxury growth if the Chinese were to resume their old habits, i.e., consume more overall...
US investors less bearish than anticipated In light of banking newsflow, we would have expected US investors to have become bearish again on Luxury. We say ''again'' as the continuously positive newsflow on China reopening had dominated our conversations since the beginning of the year. Maybe our recessionary scenario for US and European consumption since June 2022 was seen as limiting the estimate downside risk. However, what caught investors'' attention was mostly our mentions of (i) 1Q23 estimates potentially going up in the preview season just starting, on stronger than expected China trends plus the rest of the world slowing less than anticipated and (ii) China reopening not yet fully reflected in FY23 consensus. Kering generating the most debates From a stock-specific standpoint, Kering generated the most debates. In our discussions with European investors, we understand Kering is widely perceived as a stock to revisit in September at best when new designer Sabato de Sarno will present its first collection. US investors appear more opinionated, but divided, seeing Kering either as a funding short or a stock that can double. This echoes the strong readership on our recent Kering report titled ''The odds are in your favour''. Other key stock-specific discussions Among US investors, LVMH appears to remain the preferred stock. However, there were questions around (i) margin expansion with several investors disappointed by limited price increases at LV and Dior (only in Europe and Japan, so LSD on average in Feb 2023), and (ii) exclusivity now that LV and Dior sales have reached EUR22bn and EUR8bn, respectively. On Richemont, our thesis that the group is a totally different vs 2008-09 is still not widely shared, notably by investors more bearish on US/Europe. Sentiment on Moncler has improved on brand outperformance in China in 4Q (flat y/y so among the best with Hermes and Brunello). On Hermes, after the 2H22 margin beat, investors are...
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new in Luxury EDGE Strong momentum at Omega, Cartier, Burberry, Dior, Hugo Boss and VCandA. In February, brands launched new collections with runways in New York, London, Milan and Paris (fashion weeks). WeChat: Burberry and VCandA have increased their popularity the most Brands that increased their average reads the most on a rolling 3m basis were Burberry (+44%) and VCandA (+42%) with improving engagement as well. In February, Cartier and LV were #1, HB (+78%), Burberry (+67%) and Dior (+43%) improved the most. Engagement was strong at Tod''s and Zegna. Baidu: Sequential improvement for all brands ex Gucci and Moncler Louis Vuitton remains the most searched brand, followed by Chanel, Dior and Gucci. In February, Tod''s (+37%), Zegna (+6%), VCandA (+3%) and HB (+1%) increased search volumes y/y on Baidu. Google: Bvlgari and Jimmy Choo improved the most sequentially in February In February, Celine and VCandA were the closest to peak while Bvlgari and Jimmy Choo improved the most sequentially, though modestly. Hermes is also trending strongly. Searches at Rolex and Cucinelli were lower sequentially after a strong month of January. The highest improvement y/y was at VCandA and Gucci''s level of searches slipped to its lowest level since May 2017. What conclusions do we draw? Jewellers continue to perform well. After the decline in January, LV came back strongly in February and Burberry''s new logo with Daniel Lee''s debuts (FW23) clearly resonated on social media. Popularity and engagement are impressive, perhaps boding well for Burberrys'' future? On the opposite side of the spectrum, Michael Kors has been weakening heavily ytd. Fendi, SL and Balenciaga are trending lower on WeChat.
What did we learn about Kering so far in 2023? Mostly positive things As outlined in our December 2022 report Weighing the short vs the long-term, 2023 will definitely be about transition at Gucci. However, year to date, newsflow on Kering has been largely positive. The faster-than-expected China re-opening is a massive tide lifting all boats including Gucci, whose China sales declined c27% in 2022 vs 18% sector average. Gucci''s new designer, Sabato De Sarno, is relatively unknown (as anticipated) but comes from a sizeable brand (Valentino) and does not have a long non-compete clause. As of 15 Feb, Gucci sales are positive in all key markets with the exception of the US (negative since 2Q22 so nothing new). Products from De Sarno will be presented in Sep 23 and will be in store in Jan 24, but Gucci will not stand still in 2023 notably in terms of merchandising, communication and execution. Finally, no significant clearance sales of Michele''s products are planned. The above combined to encourage management to guide for both sales and margins to increase in 2023, a reassuring move in an industry where management teams rarely provide quantitative guidance. The only negative thing we learnt, in our view, is that the Balenciaga controversy is not fading much - notably in US. A risk/reward skewed firmly to the upside In our opinion, it does not make sense for Kering to trade at a 6%+ 2023 FCF yield and c17x 1yr-forward PE, a 31% discount to LVMH, which we find in itself undervalued. The only pushback to our view would be to say consensus estimates are significantly wrong and this can only be the case if Gucci ''shrinks'' from its 2022 base of EUR10bn in sales and 36% margin (flat y/y in 2022 despite China down 27%), only a 10% probability scenario in our view. While it is early days in Gucci''s turnaround, and we don''t have high conviction in several key functional aspects (eg Balenciaga), our point is that at these valuation levels you don''t have to and...
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE Momentum was strong for Omega, Cartier, VCandA and Burberry. In January, luxury brands have put on fashion shows (Men''s RTW) and pop-up stores to showcase their new collection upon the arrival of the new year. Most brands did a CNY WeChat red packet campaign with Gucci being very active. WeChat: Balenciaga and Omega increased their popularity the most Brands that increased their average reads the most on a rolling 3m were Balenciaga and Omega. In January, Hard Luxury took over the top 3 positions, with Cartier #1, Tiffany #2 and Omega #3. VCandA (+77% y/y) improved the most. LV was ranked #10, a sharp decline from previous months (100k+), even below Gucci #8 (see details on page 2). Engagement was strong at Tod''s and Zegna. Baidu: Rolex and Tod''s recorded increasing search volumes Louis Vuitton remains the most searched brand followed by Chanel, Gucci and Dior. LV search volumes were up 67% MoM, probably fuelled by its collaboration with Yayoi Kusama. In January, Rolex and Tod''s were the only brands with increased search volumes y/y on Baidu. Google: Cucinelli and Tod''s improved sequentially in January In January, Celine and VCandA were the closest to peak while Cucinelli and Tod''s were the only brands improving sequentially. Rolex is also trending strongly. Searches at Balenciaga (-53pts) were lower after a strong month of December linked to the campaign controversy. The highest improvement y/y were at VCandA. We continue to see LV closer to its peak than Gucci. What conclusions do we draw? January was (almost) all about Chinese New Year. We highlight a strong month for the jewellers, good traction for Burberry and Gucci, continued momentum at Cartier, an unusual LV weakness on WeChat - not seen on Baidu - and strong interest for Rolex...
Kering published a disappointing year-end performance as the underperformance of Gucci and the Balenciaga marketing scandal significantly weighed on the group’s business. The group has however seen a very encouraging start to the year. The accelerated margin progressions of brands other than Gucci is a promising sign, which could further balance the group’s profit structure during the transition period for Gucci. Kering still trades at a significant discount compared to its industry peers, and the valuation looks attractive.
Raising 2023 sector growth forecast to 9% from 5% In our 11 Jan 2023 BNPP Exane Deluxe Outlook for 2023, we highlighted an upside risk of up to 6% incremental sector growth if physical access to luxury stores in China by 2H23 is equivalent to what it is elsewhere in the world, and even more if the resumption of Chinese travel abroad ends up being more than just a transfer from one country to another. However, we were expecting negative trends in China in Jan-Feb 2023 before comps become easier from March. A few weeks later, it appears that Jan-Feb 2023 should be positive in China as store traffic is up in spite of the number of Covid cases increasing. We are raising our Chinese Cluster forecast for the sector to 25% from 7% (under a ''blue-sky'' scenario that figure could be 37%). We keep our forecasts unchanged for other nationalities, and thus continue to factor recessions in both US and Europe impacting the first 9 months of 2023. All in all, we have raised our 2023 sector growth forecast to 9% from 5% and consequently our EPS estimates by an average 6%, translating into higher TPs. Note there could be further upside to our estimates: an ''ultimate bull scenario'' with a ''blue-sky'' scenario in China and no US/Europe recession would result in 18% sector growth in 2023, compared to 14% in 2022. Where does this put us? Our new 9% 2023 sector growth forecast puts us in line with sell-side consensus. Buyside expectations are probably at c10%. We are higher on the Chinese Cluster (with some further upside risks) and lower on US/European consumption (recessionary scenario). We are higher on margins due to FX hedging gains being overlooked by consensus in our view. On 2023e EBIT, we are higher for Richemont, Hugo Boss, Moncler and Pandora and below for Tod''s and Swatch. Which stocks would benefit the most from a full China re-opening? We see China re-opening more as a positive driver for the entire sector than a stock-picking criterion. Based on...
Kering names Sabato De Sarno as the Creative Director of Gucci. Gucci has been lagging behind other major luxury brands in recent years, and the market’s expectations are already integrating a transition period. Gucci is at the crossroads of combining its heritage and fashion newness. The young Italian designer could bring new blood to the brand.
Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new on Luxury EDGE In December, momentum was strong at Omega, Burberry, Hugo Boss, VCandA, Cartier, Rolex and Balenciaga. Approaching Chinese New Year (starting 22nd January), most brands started to advertise their CNY limited collections in December. Plaza 66 Shanghai stores were in the spotlight. WeChat: Hugo Boss best improver of 2022 In FY22, Hugo Boss improved the most its popularity. In 4Q, Balenciaga, Zegna and Hugo Boss improved the most and we highlight higher engagement y/y for most brands (Moncler spiking). LV is still ranked #1 in our luxury panel, and Cartier #1 in jewellery. Lower popularity and lower engagement in Q4 y/y at Gucci, Tod''s and Givenchy. Baidu: Lower search volume in 2022 for all brands except Rolex Louis Vuitton remains the most searched brand followed by Chanel. In 4Q, average search volumes were declining y/y for most of the brands in our panel except Rolex and VCandA. Sequentially, searches decreased for all brands. Google: New peak for VCandA and Dior In December, VCandA and Dior reached a new peak while Moncler improved the most sequentially. Omega is gaining traction. Searches at Balenciaga were lower after reaching a peak in November (probably linked to the controversy). The highest improvement y/y were at Balenciaga and VCandA. We highlight significant contraction y/y at Gucci. What conclusions do we draw? Brands that stood out in 2022 were Hugo Boss, Louis Vuitton, Cartier, Rolex, Celine and Prada. To a lesser extent we highlight Bottega Veneta and Balenciaga. On the other hand, Gucci, Michael Kors, Givenchy, Coach and Tod''s seems to have lost some heat this year.
We are pushing our three quarters ''soft patch'' scenario forward by one quarter, but remain constructive on Luxury as evidence is growing that Covid did not create the ''bubble set to burst'', which has been the bear thesis throughout 2022. A full China reopening is not in our estimates, hence constitutes a meaningful upside risk (up to 6% incremental sector growth on top of our current 5%). 2023 sector growth (BNPPE: +5%) likely to mean Luxury outperforming most sectors In our unchanged scenario of recessions in US and Europe and patchy China reopening, sector growth would slow from 14% in 2022 to 5% in 2023, below historical average of 8%, but likely outperforming many sectors. In spite of Covid impacting China again from September, 2H22 was better than expected as luxury demand in US, Europe and ROW only slightly moderated. In 2023, we expect deterioration in US and European luxury consumers'' sentiment as they start to worry about job safety and variable pay (not the case in 2022). However, we do not expect negative trends in US and Europe as structural tailwinds such as pricing power, luxury increasingly perceived as an investment, and more importantly becoming a ''need'' for more people globally, are supportive trends in our view. In this report, we focus on China, highlighting an upside risk of up to 6% incremental sector growth if physical access to luxury stores is by 2H23 equivalent to what it is elsewhere globally. Valuation in relation to FCF generation attractive for many stocks We now have an even higher conviction that FCF generation for many stocks will remain structurally higher than pre-Covid. However, they de-rated in 2022, in spite of estimates going up. Even factoring in higher interest rates, we see many attractive risk/rewards situations. Richemont, LVMH and Moncler still preferred; Kering the wild card; BC downgraded to (-) We downgrade Brunello Cucinelli to (-) from (=), mostly on valuation. In terms of luxury exposure,...
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Brand momentum and popularity is key to both long- and short-term performance. Luxury EDGE distils the latest trends on social media and search engines for up-to-the-minute views on brand heat. What''s new in Luxury EDGE Momentum was strong at Omega, Saint Laurent, Hugo Boss, Ferragamo, Rolex, VCandA and Prada. Omega was supported by the 60th Anniversary of the James Bond watch campaign. In November, luxury brands increased their offline presence with physical events and the ease of lockdown restrictions. New Tier-1 cities Chengdu, Nanjing and Hangzhou were targeted as well as Shanghai. WeChat: Hugo Boss and Saint Laurent increased their popularity the most On a rolling 3m basis, Hugo Boss (+33%) and Saint Laurent (+23%) improved the most with higher engagement as well. LV still #1, Omega became #1 in Hard Luxury in November. Popularity fell in November for two-third of our panel''s brands. Engagement was strong at Tod''s, Moncler and Prada. Baidu: Impressive search volume increase at Rolex Louis Vuitton remains the most searched brand followed by Chanel, Rolex and Dior. Rolex searches were up 76% in November y/y, +26% m/m and +44% on a 3m basis. Google: Balenciaga, HB and SL improved the most sequentially in November In November, VCandA reached a new peak (100%) while Balenciaga improved the most sequentially, likely fuelled by searches related to its recent ad campaign controversy. Prada was also trending strongly. The highest improvement y/y were at Balenciaga and VCandA. We highlight significant contraction y/y at Fendi and continue to see LV closer to its peak than Gucci. What conclusions do we draw? We note that LV and Cartier are still trending strongly, while Hugo Boss''s brand refresh continues to resonate well on social media. We would also highlight very high interest for Rolex on search engines and for Omega on WeChat.
China reopening earlier than expected is definitely a positive for Luxury Regarding China, consensus amongst our Luxury industry contacts a bit more than a month ago (i.e., end Nov 2022), was still that (i) a loosening of Covid restrictions would not happen before Spring 2023 and, (ii) Chinese citizens would not be authorised to travel before end-2023 at best. Entering 2023 (the year of the Rabbit), most internal restrictions have been lifted, with the biggest surprise being the National Health Commission stating on 26 Dec ''outbound travel of Chinese citizens will be resumed in an orderly manner''. We believe the recent newsflow is definitely a positive for Luxury, implying upside risks later in 2023 outweighing the very short-term downside risk highlighted below. Chinese New Year likely to coincide with Covid cases surge and facing tough comps Chinese New Year (CNY) will start earlier in 2023 (22 Jan) compared to 2022 (1 Feb). The period could coincide with a surge in Covid cases, impacting consumers and store staff. In addition, Covid came back to China in late Feb 2022, meaning CNY-related luxury sales were still quite robust in 2022, thus creating tough comps for CNY 2023. In 2022, China on average for Luxury was down 5% in 1Q (with sales up slightly in Jan-Feb), then down 35% in 2Q, flattish in 3Q and down c15% in 4Qe. If confirmed, this positive China newsflow could mean upside risk to our forecasts Under our current scenario of recessions in US and Europe and China keeping to its ''zero-Covid'' policy, luxury global sector growth should slow from 15% in 2022 to 5% in 2023, below historical average of 8%, but likely to outperform that of many sectors. For Chinese demand, we currently forecast +7% in 2023 on average (after c-15% in 2022e). At this stage, visibility on the phasing of the re-openings is still very limited: the first months of 2023 would be down more than anticipated, short-term restrictions could be re-instated, and not much...
We welcome Kering''s decision to look for a new Artistic Designer for Gucci: this means 2023 will be a transition year, but far better to act now than wait for the FY22 publication, with potentially disappointing results on the back of a 4Q ''shocker'' at Gucci. 4Q22e increasingly likely to be ''shocker'' for Gucci (BNPPE -14% organic for Gucci) Gucci facing a very demanding comp in 4Q is well flagged. However, we believe the magnitude is underestimated by the market and forecast -14% organic sales (VA cons. -7%). China is tougher for everyone in Luxury in 4Q due to Covid and, in addition, is the market where Gucci suffers most from brand fatigue. This Gucci underperformance is likely to trigger a miss in Kering group EBIT vs current VA consensus for FY22: we forecast EUR 5.8bn vs VA EUR 6.0bn. 4Q/FY22 results are due 15 Feb. We see more opportunities than risks in a designer change at Gucci We agree Gucci''s Artistic Director exiting without Kering able to announce a replacement yet is creating some uncertainty. Gucci is also entering a transition period at a time when the macro is deteriorating (hence our forecast of flat sales and margin down to 35% in 2023e). However, it would have been worse if Kering had waited longer to react to Gucci brand fatigue amongst consumers. Gucci is a luxury brand with a high fashion content: a good thing as long as it is nurtured with exciting content. At this point in the brand cycle, we see more opportunities than risks in a designer change. Our EUR 650 TP is unchanged, O/P rating maintained We are keeping our EUR650 TP despite our 2022-24e EPS cut (-3%/-5%/-2%), driven by lower Gucci estimates, partially offset by higher forecasts elsewhere (mostly Saint Laurent and share buybacks). On our 2023e estimates, which are 7% below consensus, Kering, which has higher group margins than LVMH, is trading at 17x PE and 6% FCF yield, multiples which are already discounting (in our view) exaggerated investor concerns on...
Brand momentum and popularity are key to long- and short-term performance. Exane Digital Global Engagement (EDGE) distils social media/search engine trends for the latest insight into brand heat. New this month in Luxury EDGE Momentum was strong at Cartier, Rolex, Moncler. Engagement was good at Tiffany, supported by the #LOVEYOURSELFINLOVE campaign featuring Beyonce. The Hugo Boss brand refresh is still resonating. In other news, the Fashion calendar in October was rather quiet post Paris Fashion Week. Gucci, Burberry and Moncler are developing their metaverse vision (gamification and NFTs). WeChat: Hugo Boss and Bottega Veneta increased their popularity the most On a rolling 3m basis, Hugo Boss was +33%, Bottega Veneta +28% and Ferragamo +24%. Louis Vuitton and Cartier are still #1 in their respective categories. Engagement was strong at Tod''s, Moncler and Tiffany. Both popularity and engagement fell at Gucci (3m average and October y/y). Baidu: Rolex recorded increasing search volumes y/y Louis Vuitton remains the most searched brand followed by Chanel, Dior and Rolex. Cartier slips out of Top 3 with -51% decrease in search volumes m/m but only -2% y/y. On a rolling 3m, average search volumes were declining y/y for most of the brands in our panel except Rolex (+21%). Google: Moncler, Givenchy and Balenciaga improved the most sequentially in October Celine was again the brand closest to its peak while Moncler improved the most sequentially. VCandA and Rolex are also trending strongly. The highest improvement y/y were at Balenciaga and Celine. We highlight significant contraction y/y at Tod''s and continue to see LV closer to its peak than Gucci. What are the key takeaways? Cartier and LV are still trending strongly on WeChat and Moncler is building momentum around its key winter season. On search engines, interest for Rolex is very high, as it is for Celine and VCandA, while Prada and Gucci are weaker.
Best-in-class luxury brands still beating in 3Q22 In our 3 August report Luxury 2Q22 in 5 bullets, we outlined the upside to 3Q consensus numbers if China improved (due to less Covid restrictions) more than the rest of the world slowed. Halfway through the 3Q earnings season, LVMH, Brunello Cucinelli and Hermes posted meaningful beats vs consensus estimates, which had risen significantly since August. Kering was also a beat at the group level, in spite of Gucci missing. Generally speaking, it is the same old story in Luxury: very good for brands with strong desirability, less good for others. On a 3yr-stack basis vs 2019, in 3Q vs 2Q, most luxury companies saw a slowdown in US sales as a region, but their sales to the US cluster only slightly moderated due to strong sales from US tourists (notably in Europe). In Europe, the combination of strong tourist-related sales and sales to locals only slightly moderating led to solid numbers. Finally, Japan, rest of Asia ex-China and Middle East remained more than robust. 4Q22 starting better than expected In Sept and Oct so far, we believe mainland China deteriorated vs July-Aug for most players (Golden Week notably was weak) on renewed Covid restrictions and China GDP falling below 4%. However, based on recent management comments and our own industry contacts, it seems the moderation in rest of the world is far less severe than we anticipated in our 13 Sep report 2H22 Deluxe sector outlook, in which we confirmed our scenario of a 9-month soft patch starting in 4Q22 with sector growth slowing to 5% in 4Q22 and 3% in 1H23. The main reason for luxury demand remaining strong outside of China even in Oct is the ongoing macro deterioration not yet impacting high-end employment, which for us matters more than corrections in asset prices or inflation. Chinese Party National Congress: which takeaways for Luxury? The key concrete negative takeaway from that Congress is that China should maintain its strict...
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Kering published consensus-beating total group revenue for Q3 22. All segments reported double-digit comparable growth except for Gucci. The ongoing Covid-related restrictions and waning popularity of the brand on the social media in China continued to weigh on the brand. More importantly, the group confirmed that Gucci’s operating margin in H2 22 will not reach its level of H2 21, which will lead to a further downwards revision in earnings.
Luxury Edge is our analysis of social media (WeChat) and search engines (Baidu, Google). We don''t draw direct correlations with sales or brand performance, but it helps clarify brand momentum and popularity. We highlight the strong momentum at Cartier, Bottega Veneta, Rolex and Moncler. In September, most of the Luxury brands promoted their SS23 collections during London, Milan and Paris Fashion Weeks. WeChat: Ferragamo and Bottega Veneta have increased their popularity the most in 3Q22 Brands that increased their average reads the most in Q3 were Ferragamo (+24%), Bottega Veneta (+20%) and Balenciaga (+14%) with improving engagement as well. The greatest improvements in engagement Q3 y/y were at Coach, Gucci, Moncler and Dior. LV is ranked #1 in our luxury panel quarterly, with 100+k average reads in 3Q22. In Leather Goods, Gucci was #2 (69k average reads in Q2) despite a weak September (-17% y/y). In Jewellery, Cartier is still #1 with c100k reads (c30% higher than #2 Tiffany). Chanel was more popular than Dior (37k avg reads vs. 33k for Dior), Celine (30k avg reads) is gradually starting to normalize. Baidu: Rolex, Cartier and Moncler have recorded increasing search volumes in 3Q22 y/y Louis Vuitton remains the most searched brand; however, Cartier becomes the new #2 overtaking Chanel. Gucci slips out of Top 3 with -59% decrease in search volumes in September. In 3Q22, average search volumes were declining y/y for most of the brands in our panel, except Rolex (+8%), Cartier (+2%) and Moncler (+1%). Google: Moncler, Stuart Weitzman, Tiffany the highest sequential improvement in September In September, Celine was again the brand closest to its peak (at 95% of peak), while Moncler (at 49% of peak) improved the most sequentially (by 22pts). VCandA (at 94%) and Prada (at 84%) are also trending strongly. Searches at Hermes (-18pts) were lower after a strong month of August. LV remains 38pts below its peak, while Gucci stands 47pts below.
Easier 3Q comps at Gucci to be supportive. Saint Laurent and other Houses still doing well On 20 Oct, we expect Kering to publish 19% y/y reported revenue growth broken down as 11% organic and 8% FX. We foresee Gucci up 11% organic. By comparison, we have 16% at LVMH (19% FandLG). In 3Q21, Gucci''s aficionados were willing to wait to Oct-Dec to buy the long-awaited Aria collection, building up an easier comp basis for this year. For Gucci, we forecast the US to be down 6%, partially offset by robust sales to Americans abroad, contributing to 67% growth in Europe. Asia should be less negative (-2%) due to less Covid disruption in China. On a 3yr-stack we have Gucci retail accelerating to 15% (from 12% in 2Q). It gets tougher in 4Q Since June, we have taken the view that the inevitable luxury slowdown will become visible in 4Q22, hitting Gucci when the brand will still be in a transition phase. However, the rest of its portfolio should allow Kering to post 4% EPS growth in 2023. It will get tougher in 4Q on the macro side but also because Gucci will face a ''wall of comp''. Last year the brand had the new Aria collection (deferring sales from 3Q to 4Q), the House of Gucci movie and its 100-year Anniversary. We expect Kering to post c. 0.4% organic growth in 4Q, with Gucci at -3%. 14x 2023 PE for Kering is (too) cheap. We reiterate our OP rating, TP EUR 650 We understand investors'' concerns around Gucci with the brand in a transition phase during a tougher period. However, at current valuation, the risk/reward is definitely attractive. 29.3% FY22e EBIT margin (higher than LVMH), 6% FCF yield and EUR 2bn net cash ex leases - at 14x 2023 PE... Discount to LVMH is now at 35%, vs 5yr-average of 21%. With growing impact on sales and profit from houses like Saint Laurent and Balenciaga, there is now More to Kering than just Gucci. In this report, we fine-tune 3Q/4Q22 phasing, lowering our 2022-25 EPS by 1%. We maintain our Outperform recommendation, with a TP...
Luxury Edge is our analysis of social media (WeChat) and search engines (Baidu, Google). We don''t draw direct correlations with sales or brand performance, but it helps clarify brand momentum and popularity. We continue to highlight the strong momentum at Cartier, Celine, Hugo Boss, Rolex and Prada. In August, most of the Luxury brands promoted their FW22 collections. Kidswear was a key thematic due to the back-to-school period. Surfing on strong trends, we saw newness in sneakers, more bags promoted and some good metaverse initiatives at Prada and Burberry. WeChat: Canada Goose, LV and Ferragamo have increased their popularity the most Brands that have increased average reads the most on a rolling 3m basis were Canada Goose (+32%), LV (+18%) and Ferragamo (+10%). In August, Cartier and LV shared top position on WeChat with 100k+ average reads each. In Leather Goods, Gucci was #3. Cartier was the only jeweller from our panel with increased popularity y/y. On a rolling 3m basis, the biggest improvements in engagements were achieved by Gucci and Coach and in August alone, Coach (2.94%), Tod''s (1.35%) and Saint Laurent (0.78%) saw the highest engagement on WeChat. Chanel was more popular than Dior in August, coupled with a stronger engagement. Celine''s exponential growth in average reads is starting to normalize. In watches, Rolex''s popularity was up +22% in August. Baidu: Rolex was the only improver in August (+8% y/y) Louis Vuitton remains the most searched brand followed by Chanel, Dior and Gucci. On a rolling 3m basis, average search volumes were declining y/y for most of the brands in our panel except Prada (+4%). The largest drops were at LV and Gucci. Sequentially, we highlight search increases (MoM) at Celine (+18%), Canada Goose (+14%) and Rolex (+13%). In August y/y, only Rolex was up (+8%). Google: Balenciaga and Prada reported the highest sequential improvement in August In August, Celine was the brand closest to its peak (at 94%...
Our sector organic growth forecast for 2022 (13%) is higher than in January (11%), though our forecasts factor in a slowdown period of three quarters starting in 4Q22, triggered by a deterioration in high-end employment. We remain constructive on Luxury as (i) consensus EPS appears only a touch too high, (ii) valuations are down and (iii) FCF generation should remain stronger vs pre-Covid (scale, pricing power, FX tailwinds). We also look at key ESG topics impacting 2022. Sector growth seen up 9% in 2H and 5% in 2023 organically after 20% in 1H22 In 1H22 best-in-class companies saw strong results in spite of China down c35% in 2Q on the back of lockdowns. For most, the US barely slowed and Europe accelerated. We have sector organic growth slowing to 14% in 3Q22 then 5% in 4Q22 on tougher comps and weaker macro. For 2023, we have 5% with low single digit in 1H23. So far, the asset-price correction has had no impact on luxury consumption. However, a delayed effect is not unlikely and, at some stage, the high-end employment outlook (which for us matters more) could deteriorate in a recession. We''d worry more about the rest of your portfolio if LVMH FandL only grows LSD in 1H23 Short term, we see upside risk to 3Q22 estimates: China just flat y/y after -35% in 2Q22 would be enough to offset deceleration in the rest of the world, though this could imply sharper sequential slowdown in 4Q22 (never good for Luxury multiples). However, whilst 2023 consensus estimates look a bit too high in terms of organic growth, they in our view underestimate the size of the margin FX tailwind triggered by EUR weakness (delayed by hedging). In addition, all is relative, so if we are right to forecast only LSD organic growth in 1H23 for best-in-class assets such as LVMH FandLG, this might end up better than many other industries with lower margins, less pricing power, more cost inflation and supply chain issues, no FX tailwinds and weaker balance sheets. Our preferred...
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Kering reported a consensus-beating set of figures for thte H1 22, mainly driven by the promising performance of Saint Laurent and sustained good momentum at Balenciaga and AMQ. However, Gucci reported disappointing profitability, impacted by the dilution from combined FX/hedging and a high marketing spend.
Kering reported Q1 22 figures with all the brands outperforming consensus except for the “most important”, Gucci, which has been significantly affected by the new waves of COVID-related lockdowns and restrictions in China. Like its industry rivals, Kering also said that it’s too early to assess the impact of inflation on luxury demand.
Kering ended the year with both revenue and profitability beating consensus and our expectations. Gucci experienced a strong comeback with revenue jumping by 35% in Q4 21, nearly twice the consensus. The strong desirability of the Aria collection and increased investment communication during the year have borne fruit, thus, reassuring the market. The potential for new price hikes across all brands, elevated product ranges and a strong balance sheet enable the group to enter the FY22 in a better than ever shape.
Kering has published its Q3 21 revenue, which was 10% ahead of its pre-pandemic level, mainly driven by the impressive growth at Saint Laurent. However, the re-imposed restrictions related to COVID-19 and a lack of newness between collections have weighed on Gucci’s performance, especially in Asia. Management has confirmed that the new Aria collection has started to improve the dynamics at Gucci. Gucci’s Q4 21 performance will be a decisive point to witness the appeal of the brand.
Kering experienced better-than-expected H1 21 results. Overall, the figures were good. The slight miss at Bottega Veneta has been fully offset by the accelerated momentum at Gucci and the increased brand attractiveness of YSL. However, Gucci’s profitability was lagging behind LVMH’s strong deliveries on Monday. The increased investment in commercial events and the brand have weighed on the margin. The accelerated top-line momentum across all brands and higher investments in brands should bear more fruit in the second half.
Kering has released top-line growth of 25.8% for Q1 21, beating consensus expectations. All houses experienced a stronger-than-expected performance, highlighting the strong rebound at Gucci was very appreciable. Mainland China not only continued to lead the growth (at triple-digits), but the group also benefited from the buoyant consumer environment and larger online penetration in North America. The improved Gucci brand beat will enhance our confidence for the near term, but the valuation gap between Gucci and LVMH’s major brands still remain.
Kering has reported worse-than-expected FY20 revenue. All brands experienced a less-than-expected performance during the last quarter of 2020. In particular, the higher exposure to tourism and the continued downstream optimisation have left Gucci’s performance trailing its industry peers. However, the fast-growing share of online business and the favourable geographic mix have not only maintained the profitability in line with market expectations, despite the underperformed top-line performance, but also paved the way to be in an advanced position for the market turnaround post-pandemic.
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