Weak quarterly results put pressure on Kering 📉

Investors' attention in Europe today turns once again to fashion companies (as a reminder, Hermès (RMS.FR) boasted its better-than-expected results yesterday. Kering (KER.FR), which is one of the largest fashion conglomerates, bringing together brands such as Gucci, Yves Saint Laurent and Bottega Venetta, is losing nearly 3.5% in early session trading, as the company reported significantly lower-than-expected quarterly results, which once again dented (after LVMH's results) opinion of continued consumer demand in the fashion market. 

Key details of the report:

Revenue is down 13% year-on-year, primarily due to lower sales in stores and online channels. An additional aggravating factor is foreign exchange rates, which weakened results by 6% y/y. Source: Kering

The performance of Gucci, the brand that accounts for the largest share of the company's overall revenue structure, shows a continued decline in revenue on a quarterly basis. Source: Kering 

The company's results (put them against expectations): 

Overall, the company is posting worse-than-expected results in most of the key comparative measures for the company. Management said during a conference call that Ebit margins in 2023 for the Gucci brand are likely to decline. Source: Bloomberg Finance L.P.

Analysts' conclusions and comments:

• For the Kering conglomerate as a whole, the key brand is Gucci
• The brand was expected to experience a thaw this year, due to the change of artistic director to Sabato de Sarno
• However, due to weaker sales and an unfavorable macro environment, the impact of the brand changes may be seen with a delay
• Analysts at RBC Capital Markets point out that despite the weaker results, the company's current valuation appears to be discounting the news
• A decline in the company's comparable sales, along with a negative currency factor, could reduce the adjusted EBIT margin to 25%, according to Bloomberg Intelligence

Chart:

The company's shares are losing more than 25% on a quarterly basis and are currently trading below the €400 per share zone (levels not seen since March 2020. Source: xStation 5