Euphoria with Kering Results Thanks to Gucci

Euphoric reception of Kering results in the stock market with the highest rise in two years. The “guilt” is the main asset of the company, Gucci, which has achieved a comparable sales increase of 4.6% in the second quarter. This increase contrasts with the expectations of analysts, who expected a decline of 3.2%. Furthermore, also is in contrast to the results of Gucci in the first quarter, when registered a decline of almost 8% in annual terms. This is the first sales increase of Gucci since 2013. The company´s total revenue grew 20% to €1 billion.

Everything indicates that the progress of Gucci has surprised even Kering itself, which just over a quarter said it would be this year of transition for Gucci by the change in management, the decrease in the number of distributors and the launch of new products derived from the change in the leadership of the company. There are three main reasons for this unexpected improvement: increased sales in Japan (favored by comparison with the previous year, where sales suffered from increasing taxes), the discounts applied in China to the products of the previous design team (as many as 50% of the price) and improvement in Western Europe, encouraged by the economic recovery. In addition, the positive impact on the accounts of the weakness of the euro against other currencies.

In any case, we should put some caution about the company, as it will be very difficult for the company to be able to keep pace in the third quarter, as it will not have the same support from discounts and also new products will not be in stores until the end of the quarter, with a reduced impact in the next results. To offset this impact, the company is trying to cut costs to maintain efficiency. Among other measures it is renegotiating rents in China and Hong Kong, in a similar movement than the announced by Burberry very few dates ago.

As for Kering group as a whole, revenues advanced 23% to €2.86 billion, although much of this increase is due to new openings, shopping and especially the effect of currencies. Eliminating these effects, the real growth would be 7.7%. The French giant has obtained a recurrent operating profit of €773 million, down 5.4%, although beating the forecasts of experts.

Investors have welcomed these results with euphoria, with advances that have exceeded 7%, something not seen for two years, when Gucci´s sales decline started. With this increase, Kering´s market capitalization is around €22 billion and only about 10% from its all-time record earlier this year.