Kering Q3 2024 $KER (-5.75%)

Financial performance:

Kering's financial performance in Q3 2024 recorded a decline, with Group sales falling by 15% and by 16% on a like-for-like basis to €3.8 billion. This decline was impacted by negative currency effects of 1% and positive economies of scale of 2% due to the consolidation of Creed. The unfavorable market conditions in the luxury segment had a significant impact on Kering's short-term performance, particularly on Gucci, whose sales fell by 26%.

Balance sheet analysis:

However, the focus on cost control and selective investments indicates a strategic approach to maintain financial stability in times of declining sales.

Income statement:

The income statement shows a challenging quarter for Kering, with significant sales declines at the main brands. Gucci sales fell by 26%, Saint Laurent by 13% and the other houses by 15%. Bottega Veneta was a positive bright spot with a 4% increase in sales.

Cash flow analysis:

However, the focus on tightening cost control and selective investments suggests that Kering is striving to maintain cash flow during this decline in sales.

Key performance indicators and profitability:

Expected EBIT for the full year 2024 of approximately €2.5 billion indicates that Kering is focused on profitability despite the sales challenges.

Segment analysis:

• Gucci: Sales fell by 26%, strongly influenced by market conditions, particularly in the Asia-Pacific region.
• Saint Laurent: Sales fell by 13%, with wholesale recording a decline of 20%.
• Bottega Veneta: Sales increased 4%, driven by a strong performance in leather goods and growth in North America and Western Europe.
• Kering Eyewear and Corporate: Sales increased by 32%, supported by the contribution from Creed.

Competitive analysis:

Kering faces significant challenges in the luxury market as unfavorable macroeconomic conditions affect consumer behavior and in-store footfall. The company is focusing on strategic initiatives to increase brand relevance and sales quality.

Forecasts and management commentary:

Management is focused on implementing a transformation strategy, particularly at Gucci, to return to sustainable growth. The expected EBIT for the full year 2024 is around EUR 2.5 billion, reflecting the efforts to control costs and optimize investments.

Risks and opportunities:

Risks include ongoing economic and geopolitical uncertainties, which could continue to weigh on demand in the luxury segment. Opportunities arise from strategic brand enhancement and product innovation, as can be seen in the successful leather goods range and the new fragrance collection from Bottega Veneta.

Summary and strategic implications:

Kering is navigating through a challenging environment in the luxury market with declining sales at key brands. The company's strategic focus on cost control, brand enhancement and product innovation aims to stabilize financial performance and position itself for future growth. Despite the short-term challenges, the focus on sustainable growth and strategic investment points to the potential for long-term recovery and competitiveness in the luxury segment. Having exited the position at a loss, I am now back in and looking closely at how they intend to change. Something for the more courageous shareholders or the stupid ones

Positive statements:

• Bottega Veneta sales increased by 4% and by 5% on a like-for-like basis, supported by a strong performance in leather goods and double-digit growth in North America and Western Europe.
• Sales in the Kering Eyewear and Corporate segment increased by 32% and by 4% on a like-for-like basis, supported by a significant contribution from Creed.
• Balenciaga's leather goods lines performed very well and Alexander McQueen's new collections were enthusiastically received.
• Brioni focused on steady growth and Kering's jewelry houses showed resilience in challenging market conditions.
• The Group is methodically implementing its strategy with the aim of building healthy and sustainable sales growth and expects EBIT of around €2.5 billion for the 2024 financial year.

Negative statements:

• Group sales in the third quarter of 2024 decreased by 15% and by 16% on a comparable basis, with a negative currency effect of 1% and a positive scale effect of 2% due to the consolidation of Creed.
• Gucci's sales fell by 26% and by 25% on a comparable basis, strongly influenced by market conditions, particularly in the Asia-Pacific region.
• Yves Saint Laurent sales decreased by 13% and by 12% on a like-for-like basis, while wholesale sales decreased by 20% on a like-for-like basis.
• Sales in the directly operated retail network fell by 17% on a like-for-like basis, negatively impacted by lower footfall, particularly in the Asia Pacific region and Japan.
• Wholesale sales in the other stores fell by 28% on a like-for-like basis, reflecting the difficult market conditions.