On Monday, Barclays (LON:BARC) took a bearish stance on Kering (LON:0IIH) (EPA:PRTP) SA (KER:FP) (OTC: PPRUY) stock, downgrading it from Equalweight to Underweight and slashing the price target to €210 from €276.
The revision followed a recent trip to China, where Barclays' analysis indicated that Gucci, one of Kering's key brands, is experiencing a steeper sales decline in the region compared to its competitors.
According to the firm, feedback from industry experts suggests skepticism regarding the impact of Gucci's new product offerings. With the macroeconomic environment in China worsening, the potential for Gucci's turnaround is seen as increasingly uncertain.
Barclays does not anticipate Kering's other brands, such as Saint Laurent, Bottega Veneta, and Balenciaga, to sufficiently compensate for Gucci's underperformance.
The firm expressed concerns that the market's current expectations for Kering might be overly optimistic, pointing to the possibility of further earnings reductions. Despite Kering's share price having already decreased significantly, Barclays suggests that it could decline further. This outlook is based on the share price still being higher than before Gucci's growth surge under the creative direction of Alessandro Michele.
Barclays' revised price target implies an 11% downside from Kering's current share price levels. The downgrade reflects a cautious view of the luxury fashion company's near-term prospects, particularly in the crucial Chinese market.
In other recent news, Kering SA has been downgraded by both RBC Capital and UBS due to concerns over a softening luxury goods market and the implementation of Gucci's new strategy. RBC Capital adjusted its rating from Outperform to Sector Perform, reducing the price target to €290 from €310. They anticipate a delay in positive revenue growth for Gucci until the second half of 2025, with their earnings per share (EPS) estimates for Kering in fiscal year 2025 being 7% below the consensus.
Similarly, UBS downgraded Kering SA's stock from Buy to Neutral, also reducing its price target from €410.00 to €300.00. The firm revised its EPS projections downward by 17% for FY24 and by 26% for both FY25 and FY26. These changes reflect the anticipated time and costs linked to Gucci's new strategy, which contributes to approximately 70% of Kering's EBIT.
These recent developments illustrate the challenges Kering faces in repositioning Gucci and its other brands amidst a broader deceleration in the luxury sector. Both firms underscore the importance of earnings expectations in evaluating Kering's future share price and suggest a more cautious outlook than that of other market observers.
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