EUR 850.00 For Business Accounts Only

Morningstar | Gucci Growth Slowing In Europe and America on Tough Comparison Base; Shares Rich

We are maintaining our fair value estimate of EUR 387 for narrow-moat Kering because the company reported solid revenue growth in the first quarter. Revenue on a comparable basis increased by 17.5% (versus 15% we expect for the year).

Revenue growth at Gucci was 20% on a comparable basis, which compares with our expectations of 15% annual growth. This was a deceleration from 28% growth recorded in the fourth quarter but this is in addition to a challenging comparison of almost 50% growth in the first quarters of 2018 and 2017. Asia continues to power Gucci’s growth with a 35% increase, however sales in Europe and North America slowed (to 12% and 5% growth respectively) because of moderating demand from local mature markets. Volumes continue to drive growth, with the normalization of traffic especially in the mature economies, but with improving conversion. The pace of growth for ready-to-wear clothing and shoes was lower than that of handbags, which are more popular with Chinese customers (versus Americans).

Yves Saint Laurent continued growing strongly at 17.5% on a comparable basis (versus 10% our full-year forecast), Bottega Veneta was down 8.9% on a comparable basis, with new designer collections gradually becoming available in stores during the second half of the year (we forecast 3% annual growth for the division). The company's other designer brands grew by 21.7% on comparable basis, led by Balenciaga and McQueen (versus the 15% growth we expect for the full year). Corporate and other divisions, including Kering eyewear, grew by 21.5% on a comparable basis in line with our annual expectations.

For the three main brands, the Chinese cluster was up 25% in the quarter, with continuing repatriation trends seen in the past quarters (APAC up 30%).