Gucci beat sparks Kering rally as rival Hermes fails to impress
Kering Surges on Gucci Sales While Hermes Disappoints Investors
By Alessandro Parodi
July 29 (Reuters) - Kering shares surged 16.9% as flagship brand Gucci's better-than-expected quarterly sales lifted hopes that CEO Luca de Meo's turnaround efforts are gaining traction, in contrast with a slowdown at peer Hermes that knocked its shares lower.
Kering's Stock Performance and Analyst Reactions
Kering's stock recorded its biggest daily jump in almost 24 years on Wednesday to close at €292.85 ($333.26), after strong U.S. demand for its new handbags lifted Gucci sales and amid concrete debt-cutting efforts by de Meo.
Analyst Upgrades and Market Sentiment
"We believe the group is focusing on the right priorities to regain momentum and re-engage with the aspirational customers particularly for the Gucci brand," HSBC analysts said in a note to clients, upgrading the stock to "buy" from "hold".
Hermes and LVMH: Contrasting Fortunes
Birkin bag maker Hermes reported on Wednesday only a slight acceleration in organic sales, sending its shares down 11% as the market reassessed its high valuation.
A relatively muted sales improvement at industry bellwether LVMH also failed to excite investors on Tuesday amid lingering questions over whether the $400 billion luxury industry may be finally emerging from a prolonged downturn, despite spending by U.S. tech millionaires and renewed demand for jewellery.
LVMH shares closed down 0.5% on Wednesday after a wobbly session on Tuesday.
Luxury Sector Outlook
Wednesday's dramatic swings show "there is an appetite for the luxury sector where there is a clear and solid improvement of the momentum", HSBC analyst Anne-Laure Bismuth said.
Gucci Turnaround Gathers Momentum
Recent Performance and Strategic Initiatives
Gucci's second-quarter revenue dipped 2% on an organic basis, the brand's 12th straight quarterly sales drop, but the result beat analysts' forecasts and was a significant improvement from the previous quarter.
Once Kering's profit engine but recently experiencing years of weakening demand, Gucci aims to return to full-year growth this year as part of de Meo's plan to revive the €30 billion French conglomerate's fortunes.
Store Closures and Inventory Reduction
The plan includes 100 store closures by year end and a €1 billion reduction in the group's inventories within 12 months. De Meo said in April he aims to turn Gucci into a "fully client-obsessed organisation" with fewer stores but a better understanding of its customers across regions.
Growth Projections and Analyst Commentary
On Tuesday he said the brand's growth will not be linear and the third quarter, which analysts expected to be a turning point, may be "flattish".
The brand will require a strong upward swing in sales in the second half to meet its goal to return to full-year growth, RBC analysts said in a note.
Market Data and Reporting
($1 = 0.8787 euros)
(Reporting by Alessandro Parodi in Gdansk. Editing by Milla Nissi-Prussak, Jan Harvey and Mark Potter)
