Kering’s turnaround slows: Gucci traffic under pressure, cost controls support profit, Bernstein cuts price target
Gucci’s comparable directly operated retail sales fell 9% in the third quarter, and Kering withdrew its previous outlook for a return to growth by year-end. New products remain a lever for improvement in the fourth quarter, but store closures and cost controls have become important supports for profit recovery; Bernstein also cut its earnings forecasts and valuation multiple.
Original source：BernsteinFirst published on Unhidea：Original source date：
Key takeaway
Bernstein believes Gucci’s reliance on new products to drive sales exposes problems with the brand’s appeal. While Kering can improve margins through cost controls, confidence in a rapid recovery has diminished.
How much of Gucci’s decline reflects the comparison base, and how much reflects demand?
Gucci’s third-quarter revenue was 1.29 billion euros, down 6% on a comparable basis, including a 9% decline in directly operated retail. Compared with the second quarter, the year-on-year comparison base became 11 percentage points more challenging in the third quarter; meanwhile, the boost from new products weakened and traffic declined, especially in mainland China.
Comparable wholesale growth of 45% came mainly from a low comparison base and the timing of orders and shipments for new collections. Management expects it to weaken in the fourth quarter and potentially turn negative. This growth differs markedly from the demand performance of the directly operated channel.
Traffic pressure was also reflected in group customer data: spending by Chinese customers had already fallen by a percentage in the teens in the second quarter, and the decline widened by about another 5 percentage points in the third quarter. Spending by US customers continued to grow, but its growth rate slowed by about 5 percentage points from the second quarter.
How much improvement can new products bring in the fourth quarter?
Management attributed some of the slowdown to the timing of product launches and believes a stronger new-product lineup can support fourth-quarter growth. Gucci Core, aimed at everyday wear and a broader customer base, is expected to roll out fully in November; it was still at an early stage of assessment at the time of the conference call.
Bernstein accepts that new products could drive a fourth-quarter improvement, but believes excessive reliance on launches to attract customers reflects insufficient appeal in core products and continued consumer uncertainty about the brand’s positioning. The firm expects Gucci’s comparable retail sales to fall 4% in the fourth quarter and grow 1% in 2027, both below market consensus for a decline of 1% and growth of 3.5%, respectively.
Recent trading has yet to accelerate noticeably: the group performed slightly better in September than the third-quarter average, while most regions broadly continued their third-quarter trends in October. Kering has withdrawn its previous outlook for a return to growth by year-end.
What will support profit as the revenue recovery slows?
Kering still expects its recurring operating margin in 2026 to exceed that of 2025, supported by tighter cost controls; however, it no longer expects the second-half margin to exceed the first-half level. Assuming a mid-single-digit percentage decline in operating expenses, Bernstein forecasts a full-year group operating margin of 12.1%.
Net store closures reached 105 in the first nine months, exceeding the original full-year target of 100; the full-year target has been raised to at least 125. The faster pace reflects better-than-expected lease exit negotiations, rather than an expansion of the long-term closure list. Excluding sales transferred back to other stores, the drag from closures on group sales rises from about 1 percentage points in the first half to about 2 percentage points in the second half.
The group also plans to reduce fashion and leather goods inventory by about 1 billion euros before year-end and gradually reduce the number of outlet stores and their share of sales. Its operating focus is simultaneously on costs, inventory and sales quality.
Why has growth at other brands not made analysts more optimistic?
There are still bright spots within the group: Bottega Veneta grew by a high-single-digit percentage in the third quarter, driven mainly by leather goods; comparable jewelry sales grew 11%, and directly operated retail sales rose 18%. But overall comparable sales in fashion and leather goods fell 3% over the same period, and Gucci’s recovery remains the key challenge.
Based on lower revenue growth expectations, Bernstein cut its 2027 margin forecast for Gucci and lowered its Kering earnings-per-share forecasts for both 2026 and 2027 by about 9%, putting them 3% and 8.5% below market consensus, respectively.
The firm also lowered the valuation it is willing to assign: its target price-to-earnings multiple relative to the MSCI Europe Index fell from 1.80 times to 1.50 times. The cuts to both earnings forecasts and valuation reduced its price target from 270 euros to 210 euros; the rating remains “market perform”.
