Kering, Pending of Gucci´s Evolution

If some days ago we talked about the good opinion of the experts on LVMH (“a good company in a difficult sector”), today we refer to the main rival of Louis Vuitton, giant Kering, which publishes its first half results next July 27.

Leeson. 20/07/2015
Rihanna para Puma
Rihanna para Puma
Rihanna for Puma

If we talk about the overall results of the group, analysts´ consensus expected a drop in net profit of between 5% and 10%, mainly caused by Puma. On the second quarter, organic sales (excluding companies acquired in the period) would grow by 1% or 2% and operating profit (or EBIT) fell by about 8% or10%, also penalized by Puma. Profit margins will also fall.

Gucci will be the big star of the earnings presentation and who can encourage or sink the estimates for the future. Sales flagship Kering fell nearly 8% in the first quarter, its worst performance in almost a decade. In the second quarter the improvement will be noticeable, but still cannot take the rooftops, as much of this improvement is due to a more favorable comparison and also the discounts made.

Bolsos Gucci. Haz clic para comprar
Gucci handbags. Click to buy

Therefore, experts expect a drop in quarterly sales of between 0.5% and 2%, which is obviously better than in the previous quarter, though still falling. By geographical regions, the best evolution would come from Europe, thanks to the economic upturn and tourism, encouraged by the collapse of the euro. Meanwhile, US and especially Asia continue to give bad news to the group.

For the future, the fact is that all eyes are on the resilience of Gucci. The most important issue is the reception of the collections designed by the new creative director of the brand, Alessandro Michele. This will undoubtedly be the most important topic for assessing future results of Gucci and therefore of the whole group. Investors also want to know other less important but also significant topics like its expansion plans, pricing policy and productivity of its stores.

Zapatos Gucci A/W 2015. Haz clic para comprarlos
Gucci Shoes A/W 2015. Click to buy

Kering currently trades with an expected PER-2015 of 17.5x, representing a discount to the industry average, but this discount is in line with the history of the company (holding companies often trade at a discount vs. more companies specialized). Its shares advance 2.5% year to date and 6% in twelve months, although they are far from the €196 reached in March. Today the market cap of the company is just over €20 billion.

Disclosure: The author is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.

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