Investing.com - Morgan Stanley takes a look at Kering (EPA:PRTP), expecting the French luxury conglomerate’s underperformance to continue as Gucci’s turnaround to take another 2-3 years.
Kering, best known for its Gucci brand, reported a drop in overall sales in the second quarter of 11% year-on-year on a constant currency basis.
Gucci's revenue declined significantly in the first half of 2024, falling 20% year-over-year to €4.1 billion, with this steep drop primarily driven by a 20% decline in directly operated retail sales.
“We revisit our estimates on Kering and cut 2024 and 2025 EPS by 5% and 6% respectively,” said analysts at Morgan Stanley, in a note dated Sept. 19.
The bank cuts its top line estimates for Gucci in 3Q24 and 4Q24 off the back of 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 vs. peers,” said the US bank. “The brand has launched one key novelty handbag line ‘Emblem’ in September and has a few more planned for Q4. We believe if successful, there is usually some lag between launch and sales picking up.”
The management's FY24 guidance was provided mid-July before trends started getting materially worse, Morgan Stanley added, “hence we sit below company guidance on 2H24 with sales -8% and EBIT -35% (vs. guidance for EBIT -30%).”
“Contacts in China we have spoken to recently believe Gucci's turnaround will likely take another 2-3 years,” the bank added.
Morgan Stanley maintained its “equal-weight” rating on Kering, but cut its 12-month target price to €265 from €310.
At 09:10 ET (13:10 GMT), its stock price fell 3.2% to €225.65.