(News Bulletin 247) – The results of Gucci’s parent company fell in 2023, and the company warns that investments to revive commercial dynamics will weigh on operating income in 2024. But for Royal Bank of Canada, the Gucci’s potential remains untapped.

It’s difficult for Kering to follow the incredible copy delivered by LVMH during the annual results test.

Quarter after quarter, the group that owns the Gucci label suffers from comparison with its great rival, whose sales jumped 10% at the end of the year.

Over the last three months of the year, Kering published sales down 6% on a reported basis and 4% on a comparable basis, a little better than the decline anticipated by analysts (of 5% on a comparable basis). . The luxury group is therefore doing better than in the third quarter. Kering then saw its activity contract by 9% on a comparable basis (-13% on published data) between July and September 2023.

Kering explains this improvement in this trend by growth in activity in Asia-Pacific and Japan, while trends “in Western Europe and North America are improving sequentially (i.e. from one quarter to the next.

The group’s flagship brand, Gucci (50% of its sales in the third quarter) saw its quarterly revenues contract by 4%, much better than in the third quarter (-7% on a comparable basis and -14% on a published basis). ).

Throughout the year, the owner of Yves Saint Laurent unsurprisingly suffered the blow, weighed down by Gucci which remains his big Achilles heel. Last year, the company revealed a turnover down 4% on a published basis and 2% on a comparable basis to stand at 19.57 billion euros. This level of sales is, however, slightly higher than the expectations of a consensus which for its part counted on sales of 19.48 billion euros.

A little further down in the accounts, Kering’s profitability was still under pressure. Operating profit plunged 15% to 4.7 billion euros, showing a margin that fell sharply year-on-year, going from 27.5% in 2022 to 24.3% last year. In terms of net income, this is also down sharply by 17%, to 2.98 billion euros compared to 3.61 billion euros in 2022. Here too, Kering is missing the market consensus.

But from the point of view of Royal Bank of Canada (RBC), these results “are correct”, since they do not include any major unpleasant surprises, apart from a dilution of margins at Bottega Veneta and the other houses. “Gucci is not performing worse than expected, which is a relief,” says RBC.

The recovery program for Gucci

Kering is going through a bad patch, a situation that is common knowledge on the markets. And its stock market revival will undoubtedly involve the recovery of Gucci. Which is quite a project for the luxury group which expects this policy of revitalizing the Italian label to weigh on its results.

In 2024, operating profit should therefore decline, warns the luxury group, as a result of massive investments to revitalize the group’s activity.

The CEO of Kering, François-Henri Pinaut, delivered a winning message for Gucci. “Our priority is to get Gucci back on track,” he declared while recognizing that this recovery “will not happen overnight.”

In this context of low desirability for the Italian label, Kering has indeed worked hard to relaunch the brand. The luxury group has begun a process of rationalizing its sales channels and has taken several initiatives to boost Gucci and “elevate” the brand’s positioning.

Last April, Gucci notably appointed Maria Cristina Lomanto to take over as general manager, while Sabato de Sarno, a young stylist who trained at Dolce & Gabanna and Valentino, unveiled his first collection for Gucci at the end of September. “The first collection will be officially launched in mid-February, with gradual development starting in mid-March,” Royal Bank of Canada had specified in a previous note, and added that “30% of the collection will be renewed by the end 2024 by Sabato de Sarno.

And the reception given to the first Gucci collections under the leadership of Sabato de Sarno is “definitely encouraging”, according to Kering’s deputy general manager in charge of operations and finance, Jean-Marc Duplaix, quoted by Reuters.

A trend which proves Deutsche Bank right, which was one of the rare analysts to display confidence in Kering’s ability to restore luster to its Italian brand. In a note published in November, the German bank recalled “the medium-term potential of the group but also of the Gucci brand, which is largely undervalued.”

“The potential of Gucci remains untapped”, judges RBC, which notes “good strategic initiatives” in China, on the elevation of the brand, the increase in prices, and the reconstruction of its product offering, particularly in the handbags” which should ultimately, according to the bank, improve Gucci’s growth profile.

On the Paris Stock Exchange, Kering is showing an increase despite falling accounts and the announcement of investments which will weigh on the group’s profitability. The luxury group’s action increased by 3.9% around 12:05 p.m. to appear at the top of the CAC 40.

To have a complete vision of the health of luxury players listed in Paris, investors will have to wait until Friday, i.e. tomorrow, to learn of the highly anticipated results from the saddler Hermès.