July 29 (Reuters) – Shares in Kering rose 11% on Wednesday, on track for their best trading day since mid-February, after quarterly sales at the luxury group’s flagship brand Gucci beat market expectations thanks to strong U.S. demand for its new handbags.
Kering’s earnings, released on Tuesday, gave investors hope that the turnaround put in place by CEO Luca de Meo, which has also involved some debt-cutting, is bearing some fruit.
“The better-than-feared sales at Gucci, as well as a strong focus on cost control, will likely be well received by the market today,” J.P. Morgan analysts said in a note to clients.
A relatively muted improvement in sales at industry bellwether LVMH failed to excite investors on Tuesday, amid lingering question marks on whether the $400 billion luxury industry may be finally emerging from a prolonged downturn despite spending by U.S. tech millionaires and renewed demand for jewellery. LVMH shares opened up 3% on Wednesday.
A 7% rise in second-quarter sales at Birkin-bag maker Hermes, only slightly accelerating from the previous quarter’s 6%, also failed to impress the market, sending the shares down 2.4% in early Wednesday trade.
GUCCI TURNAROUND ON TRACK
Gucci’s second-quarter revenue came to €1.4 billion ($1.6 billion), down 2% on an organic basis, which beat analysts’ consensus forecast for a 4% drop, according to Visible Alpha. While marking the brand’s 12th straight quarterly sales drop, the result was a significant improvement from last quarter’s 8% decline.
Overall, Kering’s sales rose 2% in the quarter when adjusted for currency swings, just above analysts’ expectations for growth of 1.7%.
Gucci will require a notable positive inflexion in the second half of the year to meet its goal to return to full-year growth, RBC analysts said in a note.
“We would expect consensus estimates to modestly increase,” they said, adding this would reflect the first-half beat and an “increasing belief that Kering can achieve its goals which is not fully reflected at present”.
($1 = 0.8771 euros)
(Reporting by Alessandro Parodi in Gdansk, editing by Milla Nissi-Prussak)
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