Kering - We expect a longer road to recovery; down to Sell
We downgrade Kering to Sell (from Neutral) as we believe I/B/E/S consensus expectations for a revenue and margin recovery are a stretch. We believe the key Gucci brand remains at risk from its over-expanded store network, similar to other luxury brands (Prada). We also believe the current turnaround strategy will take time to meaningfully impact revenue while committed cost and capital in stores will pressure underlying margins; we reduce FY15-17E EPS 4%-13%. We see limited offsets from the rest of the portfolio and believe consensus expectations for 7% group revenue growth and 130 bp margin uplift (FY15-17E) as a challenge.
Luxury Goods : China trip: 50 voices in 4 cities in 5 days – what the industry told us
The market is questioning the sustainability of the Chinese economy, with selective positive consumption data at odds with negative industrial data. Luxury is at the crosshairs of the debate. We visited Tokyo, Shanghai, Hangzhou and Hong Kong, to ask the big questions for investors in Luxury & the Chinese consumer more broadly. Our key takeaways are as follows:
1) Travel & FX: A rare & short-lived opportunity to buy lux on the cheap.
2) Wealth effects: Bad when it was good, bad when it is bad.
3) Brands of the Future driving digital divergence.
4) China’s new luxury: Starting from the entry price, all over again.
5) Outlook: Hold on to your hats, it will be a bumpy ride.