Kering
shares
slumped
more
than
8%
at
Thursday’s
European
open
after
the
luxury
group
released
a
negative
outlook
for
the
second
half
of
the
year.
• Economic
Moat:
Narrow
• Morningstar
Uncertainty
Rating:
Medium
We
are
reducing
our
fair
value
estimate
for
narrow-moat
Kering
to
EUR448
per
share
to
factor
in
worse
expectations
for
the
second
half
of
the
year
as
the
company
grapples
with
an
industry
downturn
and
weak
brand
momentum.
We
still
believe
that
shares
offer
meaningful
upside
at
current
levels
for
patient
investors,
trading
in
5-star
territory.
Kering
reported
a
weak
set
of
results
in
the
first
half
of
the
year
with
sales
in
the
second
quarter
down
11%
on
a
constant-exchange
basis
(a
slight
sequential
worsening
from
the
first
quarter).
Gucci
was
the
main
reason
for
poor
sales,
down
19%
at
constant
currencies
(18%
decline
in
the
first
quarter).
However,
other
brands
were
also
down,
except
for
Bottega
Veneta
with
sales
up
4%.
Performance
is
toward
the
lower
end
of
previously
reported
peers
against
a
weak
industry
backdrop.
For
Gucci,
whose
recovery
is
key
to
the
investment
thesis,
only
around
25%
of
its
assortment
was
made
up
of
new
designer
collections
in
the
quarter
and
those
performed
better
than
carryover
styles,
hit
by
diminishing
traffic
and
weak
demand
from
aspirational
consumers.
Gucci’s
margin
held
up
somewhat
better
than
we
expected,
reaching
24.7%
(our
assumption
for
the
full
year
was
23%,
down
from
33%
in
2023),
but
margins
for
other
brands
also
came
under
pressure
and
resulted
in
a
42%
drop
in
operating
profit.
For
the
second
half,
the
company
guides
for
a
30%
drop
in
operating
profit
with
no
margin
improvement
from
the
first
half.
New
product
launches
for
Gucci
are
expected
to
be
supported
by
marketing
investments.
However,
the
company
is
becoming
cautious
about
other
spending.
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