Kering shares jump on double upgrade of Gucci owner by Bank of America

By Louis Goss

Kering's push to boost the performance of its flagship brand Gucci could start showing results imminently, analysts at Bank of America said on Thursday, as they gave the luxury stock a double upgrade from an underperform to a buy rating.

Bank of America's analysts led by Ashley Wallace said Kering may start seeing the first "green shoots" of a turnaround in the second half of 2024, as they argued the impacts of the luxury conglomerate's efforts to reviatalize the business and engage with "trend setters" could soon start boosting its sales.

Shares in Kering (FR:KER), listed on the Euronext Paris stock exchange, increased 5% on Thursday following news of Bank of America's double upgrade. Kering stock remains down 32% over the previous 12 months.

Kering, which alongside Gucci owns brands including Yves Saint Laurent and Balenciaga, has been one of the worst-performing luxury stocks this year, alongside Burberry (UK:BRBY), in a market that has seen middling brands lose out and the most-high end brands prosper.

The Parisian company's exposure to more "aspirational" customers, compared to high-end rivals including Hermes (FR:RMS) and LVMH Moet Hennessy Louis Vuitton (FR:MC), has seen the Gucci owner hit particularly hard by a slowdown in luxury spending driven by a downturn in the global economy.

Bank of America's analysts, however, said they believe Kering's "bottom is behind us" as they predicted growing sales of new collections from Gucci's new creative designer Sabato De Sarno, who joined the brand from Italian fashion house Valentino in 2023.

The analysts said Sabato's growing influence over Gucci's handbag collections could help drive up the brand's profits, as they noted the fashion brand has seen the proportion of revenue from sales of high-margin leather goods drop from around 60% in 2012 to 52-53% between 2021 and 2023.

Bank of America's analysts noted that Gucci's sales more than doubled in the wake of its previous turnaround under the creative leadership Alessandro Michele in 2015, before the company experienced a slowdown during COVID-19.

Now excitement around Gucci appears to be growing, the analysts said, as they pointed to an uptick in web searches for the brand on Chinese search engine Baidu, signaling improving sentiment toward the brand in its vital market China.

The analysts said Kering's push to boost its advertising spending by a mid-single-digit percentage should also help boost its brands, as the analysts argued a slump in its advertising spending in the period helped drive its loss of market share immediately following COVID-19.

-Louis Goss

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06-27-24 1036ET

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