Revenue met expectations. Why does Goldman Sachs still see weakness in its composition?

  • Kering’s third-quarter 2026 revenue was 3.345 billion euros, broadly in line with the market consensus and down 1% year on year at constant exchange rates. But retail revenue at Gucci, the group’s main source of profit, fell 9%, worse than the roughly 6% decline expected by Goldman Sachs and the market.
  • Gucci wholesale revenue rose 45% over the same period, driven mainly by a low comparison base a year earlier, helping the brand’s total revenue come in close to expectations. At group level, retail, which accounts for 75% of revenue, fell 3%, while wholesale and other channels grew 3%; the headline revenue result masked retail weakness.

Can new collections return Gucci to growth in the fourth quarter?

  • Goldman Sachs cut its forecast for Gucci’s fourth-quarter year-on-year growth from an increase of 2.5% to a decline of 1%. Spending by Chinese consumers at home and abroad remains the biggest drag on retail, while US retail has also weakened; after a sharp rise in wholesale in the third quarter, wholesale is expected to contract in the fourth quarter.
  • The Primavera collection, rolled out fully in September, appeals to high-end fashion customers but has a relatively narrow reach. The Gucci Core collection, due for a full rollout in November, will broaden its audience through everyday wear, although macroeconomic uncertainty is weighing on entry-level luxury customers. As of the report’s publication, trends in most regions in October remained broadly consistent with the third quarter, and the modest improvement in September had yet to develop into sustained acceleration.

Why cut earnings forecasts when revenue forecasts have barely changed?

  • Goldman Sachs raised its 2026 group revenue forecast by a slight 0.1%, but cut adjusted operating profit by 5.3% to 1.787 billion euros and its operating margin forecast from 12.9% to 12.2%. Weaker Gucci sales and gross margin pressure mean stable revenue coincides with downward earnings revisions.
  • The company still expects its full-year operating margin to exceed the 2025 level, but no longer expects the second half to exceed the first. Regional sales mix, raw materials and investment in quality continue to weigh on gross margin, while cost cuts and network optimization can only partly offset the pressure; Goldman Sachs also cut its 2027 adjusted operating profit forecast by 5.7%, indicating that the slower recovery extends beyond a single quarter.

How much support can other brands and store closures provide?

  • Other fashion brands’ combined third-quarter revenue was flat, while retail grew 2%. Saint Laurent was driven by the US and Europe, and Bottega Veneta achieved high-single-digit growth despite a high comparison base; organic jewelry revenue grew 11%, with the slowdown mainly due to a higher comparison base. However, Balenciaga’s ready-to-wear and footwear remained under pressure, and performance across the brands was uneven.
  • The group closed a net 105 stores in the first three quarters and raised its full-year target from 100 to at least 125. Earlier store closures help optimize costs but also reduce revenue: the company estimates that, before accounting for sales transferred to other stores, closures reduce sales growth by approximately 1 and 2 percentage points in the first and second halves, respectively.

What recovery is required by the lower price target?

  • Goldman Sachs maintained its Neutral rating and cut its 12-month price target from 250 euros to 230 euros, a reduction of 8%; this implies upside of 7.7% from the 22 October closing price of 213.50 euros. The discounted cash flow model’s cost of capital of 8.5% and long-term growth rate of 3.5% were unchanged; the cut mainly reflects weaker operating and earnings expectations.
  • Goldman Sachs still expects the group’s adjusted operating margin to recover to 14.3% in 2027 and rise to 15.9% in 2028. The price target corresponds to approximately 25 times 2027 adjusted earnings and is supported by a return to sales growth and a marked improvement in margins; the pace of Gucci’s recovery therefore remains decisive for valuation upside.