Kering’s Underperformance Will Continue – Morgan Stanley By Investing.com

Investing.com – Morgan Stanley takes a look at Kering (EPA: ), expecting the French luxury conglomerate’s poor performance to continue and Gucci’s turnaround to take another 2-3 years.

Kering, best known for its Gucci brand, reported an 11 percent year-over-year decline in total second-quarter sales at constant currency.

Gucci’s revenue fell significantly in the first half of 2024, falling 20% ​​year-on-year to €4.1 billion, with the steep decline mainly driven by a 20% drop in directly operated retail sales.

“We are revising our estimates for Kering and cutting 2024 and 2025 EPS by 5% and 6%, respectively,” analysts at Morgan Stanley said in a Sept. 19 note.

The bank is cutting its top-line estimates for Gucci in 3Q24 and 4Q24 amid slowing Chinese demand both at home and abroad.

“Our channel checks over the summer indicated no change in brand momentum at Gucci and continued underperformance against peers,” the US bank said. “The brand launched a new line of ‘Emblem’ handbags in September and has a few more planned for Q4. We think that if it’s successful, there’s usually some lag between launch and sales growth.”

Management’s guidance for FY24 was provided in mid-July before trends began to deteriorate significantly, Morgan Stanley added, “so we are below the company’s guidance in 2H24 with sales -8% and EBIT -35% (versus guidance for EBIT -30%). “

“Contacts in China we spoke with recently believe Gucci’s recovery will likely take another 2-3 years,” the bank added.

Morgan Stanley maintained its “equal weight” rating on Kering but cut its 12-month price target to €265 from €310.

At 09:10 ET (13:10 GMT), its share price was down 3.2% to €225.65.