Group revenue met expectations. Why has the outlook nevertheless weakened?

  • Kering reported third-quarter 2026 revenue of €3.345 billion, flat year on year on a reported basis and down 1% at constant exchange rates. This met market consensus and was 1 percentage point above BofA’s forecast. Group retail sales, however, fell 3% year on year, shifting to contraction from 2% growth in the second quarter.
  • The key shortfall was Gucci: third-quarter retail sales fell 9% year on year, a slowdown of 7 percentage points from the second-quarter year-on-year growth rate and 3 percentage points below both BofA’s forecast and market consensus. The group’s revenue meeting expectations masked further weakness in retail at its core brand.

Is Gucci’s problem traffic, or products and pricing?

  • Traffic is the main constraint, with mainland China the largest drag and a marked slowdown in the US. Gucci’s North American retail sales went from 9% year-on-year growth in the second quarter to a 3% decline. Conversion rates, average transaction values and average selling prices improved across regions, indicating that sales performance once customers entered stores could not offset lower traffic.
  • The pace of new-product rollout also affects sales: the Primavera collection was not fully rolled out until September and is aimed at high-end clients. Gucci Core, scheduled to reach stores in full in November, is intended to serve everyday wardrobe needs and a broader customer base. Handbags have performed well, while ready-to-wear and footwear still depend on more new products.
  • Gucci’s total revenue fell only 6%, partly thanks to 45% year-on-year growth in wholesale revenue. This reflected a low base and the timing of order shipments. The company expects wholesale growth to slow sharply in the fourth quarter, possibly turning slightly negative, making this cushion difficult to sustain.

Can the other brands offset the drag from Gucci?

  • BofA estimates that third-quarter retail sales in fashion and leather goods excluding Gucci grew about 2% year on year, similar to the second quarter. Bottega Veneta maintained high-single-digit growth and Saint Laurent returned to growth, but creative transformations at Balenciaga and McQueen continued to create pressure.
  • Jewellery revenue grew 11% year on year and remained a bright spot, though growth slowed by 7 percentage points from the second quarter. Eyewear grew 4%, slowing by 4 percentage points; the company attributed the latter mainly to shipment timing and seasonality. Sources of growth remain, but they are insufficient to reverse the decline in group retail sales.
  • The industry backdrop is also weakening: among eight companies that have reported, BofA’s weighted measure based on their luxury businesses and channels showed revenue growth falling from 4.2% in the second quarter to -0.5% in the third, leaving the recovery without a tailwind from industry demand.

Why were earnings forecasts cut more when revenue forecasts changed little?

  • The company said trading trends in most regions in October broadly continued those of the third quarter and withdrew its 2026 revenue growth guidance. The full-year EBIT margin is still expected to improve year on year, but the second-half margin will be below the first half’s 12.8%; BofA forecasts 10.9%.
  • BofA cut its revenue forecasts for each year from 2026 to 2028 by only about 0.2%, but reduced adjusted EBIT by 4%–6% and earnings per share by 5%–8%. More favourable exchange rates partly offset weaker sales, but an unfavourable regional mix in Asia led it to lower each gross-margin forecast by 20 basis points, while currency translation also raised its expense forecasts.
  • Cost controls can only partly offset the operating deleverage caused by declining Gucci retail sales. BofA now forecasts adjusted EBIT of €1.719 billion for 2026, 6.7% below market consensus, reflecting a more cautious view of profit recovery than of revenue.

Why did BofA maintain Neutral and lower its price target?

  • BofA cut its price target from €280 to €250, reflecting both lower earnings forecasts and a decline in luxury-sector valuation multiples, as well as uncertainty over the timing of Gucci’s turnaround.
  • Based on market-consensus earnings for the next 12 months, Kering trades at approximately 24 times earnings, still 16% above its ten-year average and 19% above industry peers excluding Hermès. Trough earnings have room to recover, but the current valuation also requires progress in the brand and margin recovery, so BofA maintains its Neutral rating.