Shares in Kering were set to open sharply higher on Wednesday after Gucci, the French luxury group's marquee label, posted quarterly sales that beat market expectations. The beat was attributed in the company release to strong demand in the United States for the brand's newer handbags.
Kering's earnings, published on Tuesday, reinforced investor optimism that the restructuring and strategic changes implemented by CEO Luca de Meo - including steps to reduce debt - may be beginning to produce tangible results for the group. The company's U.S.-listed shares surged 15% at the close of trading on Tuesday, marking what the company said was their largest single-day rise on record.
Analysts noted the market was likely to respond positively to Gucci's performance and Kering's emphasis on cost discipline. "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.
The market reaction to results from other major luxury houses was more mixed. Industry bellwether LVMH recorded only a relatively muted sales improvement that did not excite investors on Tuesday, according to market commentary. Hermes, the maker of Birkin bags, reported a 7% increase in second-quarter sales excluding the effects of currency movements, representing a slight acceleration from the prior quarter.
At Gucci, second-quarter revenue totaled 1.4 billion ($1.6 billion), a 2% decline on an organic basis that nonetheless outperformed analysts' consensus forecast for a 4% drop, according to Visible Alpha. The figure marked Gucci's 12th consecutive quarterly sales decline but was a noticeable improvement from the 8% decline recorded in the previous quarter.
For Kering as a whole, sales rose 2% in the quarter when adjusted for currency swings, marginally above analysts' expectations for growth of 1.7%.
RBC analysts cautioned that Gucci would need a clear positive reversal in the second half of the year to achieve its objective of returning to full-year growth. "We would expect consensus estimates to modestly increase," they said in a note, adding that upward revisions 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)