Kering SA’s stock saw a significant boost following the release of its annual earnings report. The better-than-anticipated profit and signs of stabilization at its flagship brand, Gucci, encouraged investors. While Gucci has faced challenges in recent years due to softer demand, the latest results suggest a potential turning point.
Cost-cutting measures implemented by Kering contributed to the positive earnings surprise, both for Gucci and the overall group. This led to a notable stock price increase in early Paris trading. However, despite this recent surge, Kering’s stock remains down over the past year, reflecting the ongoing challenges in the luxury market.
Gucci, which constitutes a substantial portion of Kering’s profit, has been particularly impacted by the decline in luxury spending, especially in China. Kering’s Chief Financial Officer, Armelle Poulou, indicated a slight uptick in sales in China between the third and fourth quarters. Despite this improvement, Gucci’s revenue experienced a significant drop in the final quarter of the previous year.
Analysts have responded cautiously to the results. While acknowledging the positive signs, they emphasize the uncertainty surrounding the timing of a full recovery. Piral Dadhania, an analyst at RBC Capital Markets, suggested that the results could reassure investors that trends are improving, albeit modestly.
Last week, Kering announced the departure of Gucci’s designer after a brief tenure. This decision represents one of the initial significant moves by Gucci’s new CEO, Stefano Cantino, who assumed the role in early January. The leadership change adds another layer of complexity to Gucci’s turnaround efforts.
The luxury sector as a whole has been grappling with a slowdown in demand for high-end goods. This trend has affected Kering’s competitors, including industry giant LVMH. Hermes, known for its resilience due to a loyal and affluent customer base, is expected to report its earnings soon, providing further insights into the health of the luxury market.
Kering reported a substantial decline in annual recurring operating income, reaching its lowest point since 2016. While other Kering brands, such as Yves Saint Laurent and Bottega Veneta, contributed to the overall results, the significant drop underscores the challenges faced by the group. Analysts noted the better-than-expected operating profit developments across most brands, but also highlighted the striking decline compared to the previous year.
To address these challenges, Kering is implementing cost-control measures, including a hiring freeze and supply chain optimizations. CFO Poulou outlined these initiatives during a call with reporters, emphasizing the company’s focus on navigating the current market environment. In conclusion, while Kering’s latest results offer a glimmer of hope for Gucci’s recovery, the luxury conglomerate still faces significant headwinds. The company’s cost-cutting efforts and leadership changes are key steps towards navigating the ongoing industry slowdown and positioning itself for future growth.
