From Morningstar:

Investor sentiment towards the luxury sector led to Kering shares dropping 16% in 2023, compared to LVMH’s 8% gain and Hermès’ 33% surge. The second largest luxury company spent €1.7 billion to acquire a 30% stake in Valentino and signed a partnership with Mayhoola. New designers were brought in for Gucci and Alexander McQueen, with leadership changes at Gucci and Saint Laurent. The disappointing sales at Gucci, Balenciaga, and Bottega Veneta have contributed to Kering’s declining stock price.

Kering’s financial performances have grown significantly over the past five years, with a substantial increase in revenue and earnings. However, free cashflow has only improved by 8%. The company is trailing behind competitors like LVMH, Hermès, and Moncler, leading to investors’ skepticism about Kering’s future success. Kering currently trades at a price-to-earnings multiple of 14.7 times next year’s earnings estimate compared to 21 times for its competitors.

Kering’s equity analyst, Jelena Sokolova, finds it hard to see a definite catalyst for their shares, but believes the continuous underperformance of the Gucci brand is being priced in. Gucci has suffered from underinvestment in marketing and sales following decisions made during the pandemic. A report from HSBC stated that turning around a business during an industry slowdown is challenging for Kering.

Bottega Veneta’s profit margin fell back to 19% in the last four years, and Balenciaga’s reputation was damaged after a controversial ad campaign. Management expects that the rationalization of the wholesale business will be over by mid-2024. The group is also focusing on boosting its beauty and eyewear businesses, but these assets will take some time before making a meaningful impact on sales and earnings.

As Kering prepares to release its full-year results on February 8, investor sentiment towards the brand remains cautious, and Kering is currently one of the least favored luxury names.



Read more: Can Luxury Stock Kering Make a Comeback? Gucci…