Gucci-Owner Kering Nears “Point Of Stabilization” After Brutal Luxury Downturn

Gucci owner Kering SA reported fourth-quarter earnings that showed a modest improvement following a prolonged downturn in the luxury market that rippled through Asia and the West in recent years. Some Wall Street analysts are asking if the worst is over. 

Kering reported a 12% drop in fourth-quarter revenues to 4.39 billion euros—just slightly above Bloomberg Consensus’s forecast of 4.24 billion euros. Analysts had expected revenues for the quarter to slide by around 13.3%. 

Gucci, which contributes about two-thirds of Kering’s profit, recorded a 24% drop in revenue on a comparable basis during the quarter, exceeding the 22% estimate. Sagging Chinese sales have hit the high-end fashion group.

Here’s a snapshot of Kering’s fourth-quarter earnings (courtesy of Bloomberg):

Comparable revenue -12%, estimate -13.3% (Bloomberg Consensus)

• Gucci revenue on a comparable basis -24%, estimate -22%

• Yves Saint Laurent revenue on a comparable basis -8%, estimate -10.2%

• Bottega Veneta revenue on a comparable basis +12%, estimate +4.91%

• Other Houses revenue on a comparable basis -4%, estimate -12%

• Eyewear & corporate revenue on a comparable basis +10%, estimate +6.14% 

Revenue EU4.39 billion, -12% y/y, estimate EU4.24 billion

• Gucci revenue EU1.92 billion, -24% y/y, estimate EU1.95 billion

• Yves Saint Laurent revenue EU770 million, -7.8% y/y, estimate EU738.2 million

• Bottega Veneta revenue EU480 million, +11% y/y, estimate EU452.1 million

• Other Houses revenue EU818 million, -4.1% y/y, estimate EU786.3 million

• Eyewear & corporate revenue EU434 million, +19% y/y, estimate EU405 million

Kering CEO Francois-Henri Pinault told investors the group had reached a “point of stabilization, from which we will gradually resume growth.”

“Gucci will come back. I have absolutely no doubts about this,” Pinault told analysts on an earnings call. 

RBC Capital Markets analyst Piral Dadhania told clients, “We believe the worst may be behind us, although the timing for a potential reset remains unclear at this stage.” 

Dadhania added that today’s earnings should reassure investors that “trends are modestly improving against low sentiment.”

Kering’s 2024 results are symptoms of a global luxury downturn:

Comparable revenue -12%, estimate -11.6%

Revenue EU17.19 billion, -12% y/y, estimate EU17.01 billion

Recurring operating income EU2.55 billion, -46% y/y, estimate EU2.48 billion 

• Gucci recurring operating income EU1.61 billion, -51% y/y, estimate EU1.59 billion

• Yves Saint Laurent recurring operating income EU593 million, -39% y/y, estimate EU599.5 million

• Bottega Veneta recurring operating income EU255 million, -18% y/y, estimate EU244.3 million

• Other Houses recurring operating loss EU9 million vs. profit EU212 million y/y, estimate loss EU49.2 million

Recurring operating margin 14.9% vs. 24.3% y/y, estimate 14.7%

Ebitda EU4.67 billion, -29% y/y, estimate EU4.16 billion

Ebitda margin 27.1% vs. 33.6% y/y, estimate 25.1% * Net income EU1.13 billion, -62% y/y, estimate EU1.31 billion

Dividend per share EU6, estimate EU6.53

Here are the key takeaways from the earnings results provided by other Wall Street analysts (courtesy of Bloomberg):

Morgan Stanley (equal-weight)

• Kering saw a weak end to the year but at the top line, its performance was roughly in line, says analyst Edouard Aubin

• Its operating income should come as a relief to the market given worries about the impact of operating deleverage on the group’s profitability

Jefferies (hold)

• Momentum improved in the fourth quarter as expected, writes analyst James Grzinic, adding that “more positively minded souls” will focus on what Kering called a “highly encouraging” performance at Gucci’s new leather goods and iconic lines

• Notes there is no explicit guidance for 2025 or reference to current trading

Morningstar (buy)

• Analyst Jelena Sokolova notes that all brands in the group improved performance sequentially apart from Gucci, which remains the biggest problem

• Lack of Gucci improvement doesn’t come as a big surprise, given the departure of designer Sabato De Sarno and weak brand momentum trends online

Bloomberg Intelligence

• Kering’s 2024 results show signs of stabilization in terms of the pace of declines across its brands, including Gucci, writes analyst Deborah Aitken

Kering shares in Paris jumped as much as 6.7%. Shares are down 73% since peaking in mid-2021. 

Meanwhile, Kering rivals, including LVMH Moët Hennessy Louis Vuitton SE, the world’s largest luxury group, have also been hit by a broad luxury slowdown. However, Swiss luxury group Richemont reported possible green shoots last month. 

Bloomberg Markets Live reporters Kit Rees and Michael Msika asked last month if “luxury bulls jump the gun”?

We suspect so, but the sector has encouraging signs of stabilization—conditions that would attract the bottom-feeder investor.