French Luxury brand Kering (FR:KER) issued a profit warning for the second half of 2024 after its Q2 sales dropped, reflecting struggles to revive its flagship brand, Gucci, amid weak demand in China. The company now expects its operating profit to drop by about 30% in the second half, after a 42% decline in the first half to €1.6 billion. Following the results, Kering shares fell 4.54% in Wednesday’s trading session.
Kering is a luxury goods manufacturer with a portfolio that includes brands such as Gucci, Yves Saint Laurent, Bottega Veneta, Balenciaga, and others.
Kering’s First-Half Performance
Kering’s revenue totalled €9.0 billion in the first half of 2024, reflecting an 11% decrease both on a reported and comparable basis. Among its brands, Gucci’s revenue decreased by 18% to €4.1 billion on a comparable basis.
The company is in the middle of a turnaround of its Gucci brand, aiming for more timeless designs to attract high-spending, style-conscious customers. Some analysts anticipate that the new collections will revitalize the Gucci brand in the second half of the year. However, others think the turnaround will be slow, particularly given the current slowdown in luxury demand.
Is China’s Luxury Boom Over?
Kering’sx5e results further underscore a challenging period for the global luxury industry. Yesterday, French luxury goods company LVMH (FR:MC) missed its Q2 sales estimates, hit by its disappointing performance in China. Similarly, last week, British luxury brand Burberry (GB:BRBY) cautioned about tougher trading conditions after it reported a decline of 21% year-over-year in its comparable store sales for the first half of FY25.
These retailers are struggling with lower sales in China, which remains a key market for them. Even though the market rebounded in 2023 after the pandemic-led slump, Chinese shoppers are still reluctant to spend on high-end products.
LVMH reported a 14% decline in its Q2 sales in Asia, including China, but excluding Japan. Meanwhile, Burberry’s sales in China fell by 21% in Q1 FY25. German brand Hugo Boss (DE:BOSS) also highlighted weaker product demand in China and reduced its full-year sales guidance for 2024.
Is Kering Stock a Good Buy?
Following the results, RBC Capital analyst Piral Dadhania reiterated a Buy rating on the stock, predicting a potential upside of 34.2%. On the other hand, Jefferies retained its Hold rating on KER stock, projecting nearly flat growth.
Overall, KER stock has received a Hold rating on TipRanks based on four Buys, eight Holds, and one Sell recommendation. The Kering share price target is €352.50, which is 18.3% higher than the current trading level.
