Kering Shares Soar as Analysts Cheer Q2 Results

PARIS — Kering shares soared on Wednesday after the French luxury group's second-quarter results indicated its turnaround plan is gaining traction.

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The better-than-expected performance of its star brand Gucci cheered investors, prompting a flurry of upgrades from analysts.

Kering shares rose 16.9 percent to close at 292.85 euros, leading a mixed performance by luxury stocks. By comparison, Hermès International ended the session down 11 percent as markets predicted a normalization in its growth rates following second-quarter results in line with analyst forecasts.

HSBC upgraded Kering to "buy" and raised its target price to 340 euros from 290 euros.

Anne-Laure Bismuth, head of consumer luxury and sporting goods research at HSBC, said it doesn't expect Gucci to return to growth this year, but the arrival in stores in mid-July of creative director Demna's first full collection should sustain momentum at the brand, which is seeing early uptake among U.S. consumers in particular.

Gucci, which posted a 2 percent organic sales drop in the second quarter, could return to positive sales growth in the last three months of the year, she said.

"We believe the group is focusing on the right priorities to regain momentum and reengage with the aspirational customers particularly for the Gucci brand, with a focus on product creativity, quality and competitive pricing," Bismuth said in a research note.

Luca Solca, analyst at Bernstein, similarly homed in on Kering chief executive officer Luca de Meo's remarks indicating that Gucci has revised its pricing to correct the phenomenon some analysts have termed "greedflation."

"Gucci is competitively priced on the new products, and we have also, in a few cases, repositioned some of the products, because I have the feeling that in some categories we went too far," de Meo said. "Sometimes that had a very big impact on the volume, so the elasticity was not exactly linear: it was exponential."

Bernstein raised its price target to 270 euros from 220 euros, reflecting growing confidence in the strategic turnaround plan unveiled by de Meo during a Capital Markets Day in Florence in April.

"Gucci's new and more realistic take on pricing, product and positioning seems the most important reason for its quick revenue stabilization," Solca said.

Bernstein highlighted Gucci's "bold willingness" to cut the price of its Mercato Tote Bag in early May, following a global slowdown in luxury spending that has seen an estimated 70 million aspirational consumers drop out of the market since 2023.

"Moving down to meet customers, as opposed to pulling them up on mere creativity, is not necessarily bad — assuming genuine brand desirability develops from faster brand momentum. There is a huge audience of 'luxury orphans' that Kering — and accessible luxury players — can take care of," Solca remarked.

RBC increased its price target to 350 euros from 340 euros on the back of the first-half results, which it said, "provide early confirmation of stabilization under new leadership."

Oliver Chen at TD Cowen, meanwhile, was enthused about leather goods at Gucci, which returned to growth in the second quarter, supported by the launches of the Borsetto and Paparazzo bags.

"We see compelling and more alluring storytelling is back at Gucci and new styles including the Paparazzo have the right dose of the deliberately undone morning-after mood along with horsebit house codes," Chen noted.

Jelena Sokolova, senior equity analyst at Morningstar, deemed Gucci's recovery encouraging.

"While the brand is not back to growth yet, the improvements in revenue trends, margins and regional performance suggest the turnaround efforts are beginning to gain traction," she said.

"Importantly, Kering is now executing that turnaround from a stronger position. Continued cost discipline and a significant reduction in debt have strengthened the balance sheet, giving management greater flexibility and reducing the pressure to prioritise short-term measures over brand equity," she added.

"Over the longer term, we continue to believe Gucci has the potential to return to outperformance, supported by the strength of the brand, its evolving creative direction and ongoing operational improvements," Sokolova said.

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