Kering exceeds expectations, but coronavirus impact looms

Kering shines on the stock market Wednesday after releasing fourth-quarter revenue above expectations, but the group warned that the coronavirus health crisis could weigh on the luxury sector, which is highly exposed to the Chinese market.

By Reuters (Sarah White and Silvia Aloisi)

* Kering goes public after its results

* Q4 turnover exceeds expectations

* The coronavirus could influence the trend (Updated with details, comments, stock market prices)

 

 

The outbreak in China could have a negative impact on “consumption trends and tourist flows, as well as their ability to affect economic growth,” according to Kering.

 

The group was faced last year with a sharp erosion of its sales in Hong Kong, scene of several months of demonstrations. However, the marked growth recorded in mainland China enabled it to offset this decline.

 

At 10:24 am, the stock rose 1.79% to 572.80 euros, posting one of the strongest increases in the CAC 40 index (+ 0.26%) and the EuroStoxx 50 (+ 0.32% ).

 

In its wake, LVMH takes 0.89% and Hermès gains 0.52%.

 

The title Kering took up more than 3% at the start of the session before reducing its gains.

 

Like other players in the sector, Kering could accuse the blow of the measures taken in an attempt to halt the spread of the Covid-19 coronavirus epidemic, whether it be the confinement of major Chinese cities, flight cancellations or the prohibition of the entry of Chinese tourists by certain countries.

 

The group said it had seen a noticeable drop in store visits to China, indicating that about half of its stores were closed due to the epidemic.

 

Kering chief financial officer Jean-Marc Duplaix told the press that despite the current climate of uncertainty, the group “remains very confident in its growth potential in the medium and long term“.

 

 

A POSSIBLE IMPACT IN Q1 2020

Carried by its flagship Gucci, the French group achieved in the fourth quarter a turnover in increase of 13.8% to 4.36 billion euros, with an increase of 11.4% in comparable data (it is that is, by neutralizing the impact of exchange rate developments and acquisitions).

 

Bryan Garnier calls Kering’s publication “healthy and better than expected” and remains buyable in value.

 

Concerns about the coronavirus could offset the good performances posted by the group at the end of last year, estimates Credit Suisse, which maintains a recommendation to “neutral” on the title.

 

Same analysis on the side of JPMorgan, which keeps a board to “overweight” on the title.

 

We do not think that this remarkable performance will be enough to overcome the concerns linked to the coronavirus and to avoid a significant financial impact in the first quarter of 2020,” writes the intermediary.

 

The evolution of turnover, above expectations, is largely in line with the performance of the previous quarter, despite a halving of sales in the administrative region of Hong Kong, according to Jean-Marc Duplaix.

 

Gucci generates 83% of Kering’s operating income, which also includes the Saint Laurent and Balenciaga brands.

 

In the fourth quarter, the Italian brand halted the decline in sales and returned to growth in the United States, said Jean-Marc Duplaix.

 

Kering also reported a 37.4% drop in net profit for the 2019 financial year, notably penalized by a fine of 1.25 billion euros paid to the Italian tax authorities as part of an agreement to amicably to settle a dispute concerning Gucci. (French version Myriam Rivet and Patrick Vignal, edited by Jean-Michel Bélot)

 

Read also: China’s ‘Gen Z’ shoppers fuelling luxury market momentum: Bain

 

 

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