Company Reports

We are maintaining our fair value estimate of EUR 510 per share for narrow-moat Kering, even as we expect to reduce our estimates for profitability in 2024, in line with management’s guidance. Our current EBIT estimates were already below FactSet consensus. We view shares as attractive as we believe issues plaguing Kering’s brands are cyclical (fashion and economic cycle) rather than structural.

We are reducing our fair value estimate for narrow-moat Kering to EUR 510 from EUR 600 after the company issued a profit warning for first-quarter sales trends for the business, overall, and the Gucci brand, specifically. We believe the profit warning is linked to weakened brand momentum in a tougher macroeconomic environment and we don’t see this weakness as permanent. We see shares as undervalued as we think it's highly unlikely Gucci will continue to lag the industry thanks to its brand recognition, conspicuous products, high control over distribution (all moat-supporting pillars), Kering group’s financial resources to invest in the brand, and access to management talent.

Kering Group’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for over 50% of revenue and almost 70% of the company's earnings, but brands like Saint Laurent (over EUR 3 billion revenue), Bottega Veneta, and Balenciaga are also set to support growth in future.

We are maintaining our fair value estimate of EUR 600 for narrow-moat Kering as the company reported somewhat improving revenue trends in the fourth quarter and margin pressure. Like peers, the fourth quarter benefited from an easier comparison base notably in Asia (fourth quarter of 2022 was impacted by lockdowns in China). Sales were down 4% at constant currencies (negative 9% in the third quarter) for the group and negative 4% for the Gucci brand. Kering group continues underperforming its big peers, such as LVMH and Richemont (9% growth for LVMH’s fashion & leather division and 8% for Richemont in the quarter). Still, we believe shares present value, as we don’t see current underperfomance as permanent.

We are reducing our fair value estimate for narrow-moat Kering to EUR 600 from EUR 650 as we adjust our near-term forecast to incorporate more pressure on the company’s brand revenue and margins after weak third-quarter sales numbers.

Kering Group’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for over 50% of revenue and almost 70% of the company's earnings, but brands like Saint Laurent (over EUR 3 billion revenue), Bottega Veneta, and Balenciaga are also set to support growth in future.

We maintain our EUR 650 fair value estimate for narrow-moat Kering as the company reported continued weakness in its first-half results and announced the acquisition of a 30% stake in Valentino. Despite a weaker sales trajectory than peers, we believe shares look attractive at current levels, trading in 4-star territory with 25% upside to our fair value estimate. We believe it is highly unlikely that Kering, the second-largest luxury conglomerate, with established strong luxury brands and access to financial resources for marketing and executive and creative talent, would continuously lag competitors. This scenario currently seems to be priced into shares (17 times forward earnings and more than a 20% discount to a peer median of 22 times).

Kering Group’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for over 50% of revenue and almost 70% of the company's earnings, but brands like Saint Laurent (over EUR 3 billion revenue), Bottega Veneta, and Balenciaga are also set to support growth in future.

We don’t expect to change our EUR 650 fair value estimate for narrow-moat Kering as the firm reported weak revenue trends in the first quarter.

Kering Group’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for over 50% of revenue and almost 70% of the company's earnings, but brands like Saint Laurent (over EUR 3 billion revenue), Bottega Veneta, and Balenciaga are also set to support growth in future.

We maintain our EUR 620 fair value estimate for narrow-moat Kering after the company delivered a rather weak set of fourth-quarter results hindered by lockdowns in China and weak Gucci performance. We view shares as fairly valued at the moment.

We are maintaining our fair value estimate and narrow moat rating for Kering as the company reported solid third-quarter sales, albeit the most profitable and biggest brand Gucci continued to lack the group’s growth and its big peers (LVMH’s fashion and leather division and Hermes). After a share price decline of more than 30% in 2022, Kering’s shares are among the cheapest in our luxury coverage, trading at 13 times consensus earnings, in 4-star territory, and 35% upside to our fair value estimate.

Kering’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for almost 60% of revenue and 80% of the company's earnings but brands like Saint Laurent (over EUR 2 billion in pre-COVID-19 revenue), Bottega Veneta and Balenciaga (with pre-COVID-19 revenue in excess of EUR 1 billion) are also set to support growth in the future.

We are increasing our fair value estimate for narrow-moat Kering slightly to EUR 620 as we tweak our full-year assumptions after first-half results to reflect better growth and profitability of Saint Laurent in 2022, better growth of other brands, but lower profitability of Gucci and Bottega Veneta than we previously expected. Our long-term expectations for the group are intact and we view shares as attractive at current levels.

Kering’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for almost 60% of revenue and 80% of the company's earnings but brands like Saint Laurent (over EUR 2 billion in pre-COVID-19 revenue), Bottega Veneta and Balenciaga (with pre-COVID-19 revenue in excess of EUR 1 billion) are also set to support growth in the future.

We are maintaining our fair value estimate of EUR 590 per share for narrow-moat Kering as the company reported solid growth of revenue in the first quarter. Revenue was up 21.4% on comparable basis versus 11% in our full-year forecasts, helped by easy comparison in Western Europe, which was still affected by lockdowns in the first quarter of 2021 (group retail sales were up 75% in the region). North America continued to deliver very strong results, with revenue up 42% for the group, on retail basis. Asia-Pacific was the only region that saw weakness in the quarter (flat on retail basis), negatively affected by COVID-19 restrictions in China.

Following a deep dive into recent and historic performance drivers of the main fashion and leather groups’ top brands, we are lifting our fair value estimates for these names: wide-moat LVMH to EUR 510 per share from EUR 394, wide-moat Hermes to EUR 620 per share from EUR 540 per share, and narrow-moat Kering to EUR 590 per share from EUR 455. Fair value increases largely stem from our more optimistic forecasts for the groups’ top brands (Kering’s Gucci, LVMH’s Louis Vuitton, and Hermes) which we expect to grow at 7%, 8%-9% and 8.3% respectively, over the next decade, versus 5.5% expected luxury industry growth. We think the big brands are well positioned to outperform in the longer term as they can afford superior marketing budgets and differentiated real estate, their brand recognition is backed by secondary market success, and they retain control over distribution channels offline and online. Risks to this performance include success-induced complacency, consumer preference shifts, normalization of luxury demand in the United States that was buoyed by a few nonrecurring tailwinds, and China's "common prosperity" push. LVMH and Hermes shares still look expensive, while Kering’s shares are trading in line with our fair value estimate.

Kering’s portfolio of luxury brands provides it with a narrow moat and a good platform for future growth. The flagship Gucci brand accounts for almost 60% of revenue and 80% of the company's earnings but brands like Saint Laurent (over EUR 2 billion in pre-COVID-19 revenue), Bottega Veneta and Balenciaga (with pre-COVID-19 revenue in excess of EUR 1 billion) are also set to support growth in the future.

We are not making any changes to our fair value estimates for our luxury and apparel coverage list due to Russia-Ukraine armed conflict. The luxury industry’s exposure to the Russia and Ukraine is small, accounting for a low-single-digit percentage of revenue, by our estimates. We believe that the conflict is unlikely to dampen consumer confidence in China (primary long-term growth driver) or the U.S. (driver of growth in recent years). European consumer sentiment (low-20% of industry’s sales) may be affected, should energy-related inflation accelerate meaningfully as a result of conflict; however, Morningstar's view is that the likelihood of gas delivery disruption to Europe from Russia is low. That said, most luxury names in our coverage look expensive to us, and we would recommend investors await a wider margin of error for investment in the sector.

We expect to increase our fair value estimate for narrow-moat Kering by a high-single-digit percentage as it delivered strong full-year results, that exceeded our expectations, driven by very strong performance in the fourth quarter (notably for the Gucci brand).