Shares of Gucci's owner posted the best growth in a quarter. Are they worth buying now?

Shares of the owner of Gucci showed the best quarter in history: in three months, Kering securities added more than 50%, and relative to June, when it became known about the appointment of a new CEO, the growth exceeded 60%. Investors believe in changes under the new leadership, but the sustainability of the rally remains in question. Some analysts believe that the potential remains high in the event of a successful rebuilding of Gucci, while others warn: the reversal is already partially factored into the price and quick results should not be expected.

Shares of Kering for the last three months jumped by 53% - this is the best quarterly result in the history of the company, writes Bloomberg. And if we count from June, when it became known about the appointment of Luca de Meo as the new CEO, the securities have grown by 64%.

At the trading in Paris on October 2, Kering shares renewed the maximum since the end of July - early August 2024. At the moment, they were up 2% to €289.25.

Investors' optimism is linked to their hopes for changes in the company under the leadership of de Meo, who previously headed Renault, Bloomberg writes. However, Gucci's revenue has declined for the past eight consecutive quarters, and Bloomberg believes the decline will continue into the third quarter, for which Kering will report on October 22.

If de Meo manages to turn the situation at Gucci around, the potential for share growth will be significant, some experts believe. Thus, John San Marko from Neuberger Berman told Bloomberg that the new CEO has already started to form the basis for recovery - he appointed a new head of Gucci and promised to cut costs.

"The potential is very high if creativity and product can be established. But the rapidly changing leadership creates a challenge to build a structure of responsibility and accountability," San Mark said.

HSBC analysts also believe that one should not expect quick results from the changes. According to their forecasts, the growth of Gucci sales will not begin until the second quarter of 2026. At the same time, weak performance in the third quarter will not be critical.

"We believe the new management will get the credit: the coming quarters will be perceived by the market as a legacy of the previous management. This will be an opportunity to realize the massive changes that have already been implemented in a short period of time," Ann-Laure Bismuth and her colleagues wrote in the report.

Skeptics note that the reversal is already partially embedded in the share price. Since July, Kering securities have been trading at a premium to earnings relative to the Goldman Sachs industry basket, although they remained cheaper than it for more than five years before that, Bloomberg writes.

"For long-term funds to get interested again, there needs to be a real trend reversal, and so far there hasn't been one. We will only see the real effect in spring, when it will be clear whether the perception of Gucci is changing and whether the brand is becoming relevant again," said Flavio Cereda of GAM UK, who sold shares in March when Demna Gvasalia was appointed creative director of Gucci.

Over the past three years, analysts have become much more cautious about Kering compared to its competitors, the agency notes. Now the securities have 10 recommendations "sell", 15 - "hold" and only seven - "buy". The average target price is €225.5, which is 20% below the current level. For comparison: shares of the largest luxury holding LVMH have only one "sell" recommendation, Hermès - two, and their target prices are higher than market prices.

"Gucci should regain its price premium and appeal in the long term. While the catalysts for this are not yet obvious, we have yet to see a brand with such global recognition and scale go out of fashion for good," said Morningstar analyst Elena Sokolova.

Gucci, the group's biggest brand, has experienced staff reshuffles and falling demand for luxury goods in recent years, especially in China. Since September 2023, the fashion house has had four CEOs and three creative heads since Alessandro Michele's departure in November 2022. His era is remembered for his flamboyant bohemian style and success with the public, the agency notes.

In the previous decade, Kering's securities yielded only 3.8% annually, while rivals LVMH and Hermès averaged 13% and 21%, respectively, Bloomberg notes.

This article was AI-translated and verified by a human editor