On Monday, Jefferies adjusted its price target for Kering (EPA:PRTP) SA (KER:FP) (OTC: PPRUY), a luxury goods company, from EUR230.00 to EUR220.00, while maintaining a Hold rating on the stock. The adjustment follows expectations of a challenging luxury demand environment. The firm anticipates that the upcoming third-quarter sales update on October 23 will reflect these challenges, particularly due to a weakening market in China, which is expected to impact the luxury sector.
The analysis suggests that neither Kering as a whole nor its prominent brand, Gucci, is likely to see benefits from a softer base of comparison in the third quarter. The firm has also delayed its expectations for the impact of cost reduction measures on mitigating negative sales leverage. As a result, the forecast for the company's financial performance has been revised downward.
The revisions by Jefferies have led to a decrease in their earnings estimates for Kering, with a 4% reduction for the year 2024 and a 3% reduction for 2025. These cuts reflect the anticipated difficulties the company may face in the near future due to the current market conditions.
The report highlights concerns about the luxury sector's ability to cope with a tough demand backdrop, especially in the Chinese market, which has been a significant contributor to the industry's growth. The outlook for Kering and its subsidiaries, including the high-end fashion house Gucci, appears cautious as they navigate the challenging global market landscape.
In other recent news, Kering SA is facing challenges as it attempts to revitalize its key brand, Gucci, amid a broader deceleration in the luxury sector. Barclays recently downgraded Kering SA's stock from Equalweight to Underweight, based on a steeper sales decline for Gucci in China compared to its competitors. Meanwhile, RBC Capital also downgraded Kering SA from Outperform to Sector Perform, citing concerns over a softening luxury goods market. Their earnings per share estimates for Kering in fiscal year 2025 are 7% below the consensus.
UBS followed suit, downgrading Kering SA's stock from Buy to Neutral, and revising its earnings per share projections downward by 17% for FY24, and by 26% for both FY25 and FY26. These revisions reflect the time and costs associated with Gucci's new strategy implementation and the impact of a slowdown in sector trends on Kering's brands. All three firms suggest a more cautious outlook for Kering's future share price, indicating the importance of earnings expectations in evaluating the company's performance. These are recent developments, highlighting the challenges Kering faces in repositioning Gucci and its other brands.
InvestingPro Insights
As Kering SA (OTC: PPRUY) prepares for its third-quarter sales update, the InvestingPro data provides additional context on the company's financial health. Despite the challenges outlined by Jefferies, Kering boasts an impressive gross profit margin of 75.37% for the last twelve months as of Q2 2024. This is a testament to the company's ability to maintain high profitability in its operations. Moreover, Kering has a strong history of rewarding its shareholders, as evidenced by its significant dividend yield of 6.44% and a record of maintaining dividend payments for 33 consecutive years.
However, it's important to note that analysts anticipate a revenue decline of 10.25% over the last twelve months as of Q2 2024, which could be indicative of the challenging luxury demand environment mentioned. Additionally, Kering's stock has experienced a significant downturn, trading near its 52-week low and witnessing a 46.8% decline in its one-year price total return as of the same period.
InvestingPro Tips highlight the company's ability to remain profitable, with a positive outlook for this year, which could be a silver lining for investors considering the stock's recent performance. For those interested in a deeper dive into Kering's financials and future prospects, InvestingPro offers an array of additional tips, with a total of 11 tips currently available on the platform, providing a comprehensive analysis for potential investors.
With these insights, investors can better understand the complex landscape Kering operates in and make more informed decisions. The InvestingPro Fair Value estimate stands at $34.14, suggesting potential upside from the current price level, which could be an important consideration for those evaluating the stock's future trajectory.
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