Going into Earnings, is Gucci Owner Kering’s Stock a Buy, Sell or Hold?

Key
Morningstar
Metrics
for
Kering
Shares

Fair
Value
Estimate:
€600
Current
price:
€391.55
Morningstar
Rating:
★★★★★
Morningstar
Economic
Moat
Rating:
Narrow
Moat
Morningstar
Uncertainty
Rating:
Medium

What
to
Expect
from
Kering
Earnings

After
a
9%
organic
sales
decline
in
the
third
quarter
of
2023,
analysts
expect
Q4
revenue
to
decline
4.6%
on
a
like-for-like
basis
to
€4.81
billion,
according
to
Factset
consensus
data.
Gucci
should
record
a
revenue
decline
of
2.8%
on
a
like-for-like
basis
to
€2.46
billion.

Two
of
its
other
brands,
Bottega
Veneta
and
Yves
Saint
Laurent,
are
expected
to
record
organic
sales
declines
of
3.8%
and
5.8%,
respectively,
during
the
last
quarter
of
2023.

Full-year
revenue
is
expected
to
fall
to
€19.54
billion
compared
to
€20.35
billion
in
2022
–
down
2.5%
on
a
like-for-like
basis.

Earnings
before
interest
and
taxes
is
forecasted
at
€4.87
billion
for
the
year,
compared
to
€5.59
billion
a
year
earlier.

Net
income
for
2023
is
set
to
hit
€3.15
billion,
while
free
cash-flow
is
seen
at
€1.68
billion.
This
is
down
from
the
€3.21
billion
the
company
posted
in
2022.

Looking
ahead,
analysts
are
cautious
about
Gucci’s
sales
recovery,
expecting
mid-single-digit
organic
decline
in
sales
during
the
first
half
of
2024,
and
a
mid-to-high
single-digit
growth
during
the
second
half
of
the
year.

Overall,
markets
envisage
low
single-digit
organic
growth
for
Kering,
with
the
expectations
around
2.6%.

Like
LVMH,
Kering
does
not
provide
hard
numbers
for
its
earnings
guidance.
When
it
released
it

2022
financial
results,
the
company
stated
its
ambitions
to
“maintain
a
trajectory
of
profitable
growth
resulting
in
high
levels
of
cash
flow
generation
and
return
on
capital
employed,
and
confirm
its
status
as
one
of
the
most
influential
groups
in
the
luxury
industry”.

So
far,
sales
and
earnings
have
been
far
from
achieving
this
ambition.

Kering
Stock:
Should
I
Buy,
Sell,
or
Hold?

The
current
fair
value
estimate
of
€600
per
share
factors
in
long-term
sales
growth
of
5.2%
per
annum
for
Gucci,
slightly
above
Morningstar’s
forecast
for
the
industry
(+4.9%).

Jelena
Sokolova,
equity
analyst
at
Morningstar,
says:
“We
expect
revenue
for
Gucci
to
be
down
by
mid-single
digits
in
2023
and
marginally
up
in
2024
as
the
brand
repositions
its
offering
toward
new
designer
collections
and
reinvests
in
marketing
to
boost
appeal.”

Margins
should
stay
in
the
low
30%
region
for
Gucci
in
2023
and
2024
(in
2022,
this
was
35.6%).
Long-term
margin
for
the
brand
is
expected
to
remain
below
the
41%
peak
it
reached
in
2019,
but
Sokolova
expects
it
to
be
“significantly
above
its
historical
low-30s
margin”.

Other
brands
in
the
group
should
record
more
solid
growth
going
forward:
4.5%
for
Bottega
Veneta,
4.3%
for
Yves
Saint
Laurent,
and
5.2%
per
annum
for
other
luxury
brands.

After
last
earnings
season,
Sokolova
noted
that
the
current
weakness
could
represent
a
buying
opportunity,
and
the
stock
is
currently
trading
in
5-star
territory,
or
in
other
words,
is
significantly
undervalued.

“We
still
believe
it
is
highly
unlikely
one
of
the
best-known
luxury
brands
with
strong
control
over
distribution
and
the
backing
of
Kering’s
substantial
resources
(marketing
and
access
to
talent)
will
continuously
trail
the
industry
in
growth,
something
that
Kering’s
13
times
forward
earnings
multiple
(20-sector
average)
seems
to
imply.”

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