Kering: Gucci's Performance Deteriorates as Group Issues Profit Warning; Shares Undervalued

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.