Can Web3 Innovation & Content Strategy Help Power Kering Out of the Doldrums?
FSW's new High Frequency luxury monitoring service looks at the short- and medium-term prospects for Kering as we near their February 8 earnings release.
FSW’s New High Frequency Luxury Monitor service
Fashion Strategy Weekly has been offering a new service that analyzes what daily news releases, earnings announcements, and market movements reveal about the near- and medium-term prospects for luxury strategy. This Fashion Strategy Weekly (FSW) High Frequency Luxury Monitor updates on a regular basis on the FSW site (under the High Frequency Monitoring tab) and on LinkedIn, though updates will not go out automatically to FSW subscribers.
A unique offering of the service is the FSW High Frequency All Luxury Stock Index. This is a market capitalization-weighted index of what we regard of the top 15 luxury stocks in the world. It is a big improvement on most ETFs as a summary of the movement of luxury industry stocks as most ETFs contain firms that many would not regard as having the same economic characteristics as luxury (e.g., Tesla).
Another poor earnings report is expected from Kering this week
Kering has been the sick man among major luxury conglomerates for a number of years. There are many ways to measure its relative underperformance. Looking at its share price, it has fallen almost 40 percent since the start of the pandemic. This compares catastrophically poorly with LVMH and Richemont, whose shares have risen 80 and 90 percent, respectively. Looking at just 2024, Kering’s share price is down around 1 percent while the FSW All Luxury Index is up over 8 percent.
In terms of vision and stability, Kering has really struggled in the past few years. The departure of Marco Bizzarri as Gucci CEO in July of last year was a shock. Gucci contributes over 60 percent of the Kering’s operating income and his departure contributed to a sense of directional uncertainty that began with Alessandro Michele’s departure in November 2022.
Things have not been a total disaster as the luxury group is still very profitable (posting net income of €1.79 billion in the first half of last year) but the trend has been in the shape of nosedive (that €1.79 billion was down 10 percent on the prior year) and it has performed exceptionally poorly when compared with its peers.
So what should we expect when Kering releases its full year 2023 returns on February 8? The market expects another poor installment with the average EBITA (earnings before interest, taxes, and amortization) forecast at €6.7 billion, down over 9 percent from 2022. Since FSW is more interested in looking at long-term trends, let’s assess the historical rolling EBITA estimate and stock price for the next 12 months (NTM) below. This gives a picture of the continuation of a down trending earnings estimate (blue line) and is reflected in a free falling stock price (black line).
Kering: Historical Rolling NTM Estimate vs Stock Price for the Past 3 Years
The next two years look more positive
Yet could this be a storm before the calm? The market does expect positive earnings growth next year (3.2 percent) and very strong growth in 2025 (~ 10 percent). Presumably this optimism originates from the view that the management transitions at Kering slow down and the new strategic directions yield returns amid a hopefully improving macroeconomic backdrop. We remain fairly optimistic about Kering long-term given its commitment to strong brand storytelling across a range of innovative platforms.
Gucci was the first luxury brand to metaverse experience in The Sandbox. In October 2022, it launched a wide-ranging Sandbox experience that included experimental space for NFTs, vintage items, and emerging creators. Prior to this, Gucci collaborated with SUPERPLASTIC in to launch a series of NFTs that featured a mix of Gucci patterns with SUPERPLASTIC’s animated characters. And perhaps one of the most famous NFTs collections in the world that included Bored Ape Yacht Club (BAYC) and their affiliated collections.
Our favorite of Gucci’s many activities in the Web3 space was the creation of Gucci Town, an instance in the virtual Roblox world. We loved this instance as it was choked full of content, including material about the brand, its history, and the work of Alessandro Michele. Looking a bit like an Italian piazza, the instance also gave users the chance to play Gucci-themed games and, of course, purchase Gucci merchandise that would be worn by your avatar across many other Roblox experiences. Most shockingly, in May 2021, Gucci sold a digital version of its Dionysus Bag with Bee for $4,115, which was $715 more than the “real” version. Bear in mind, that this was a Roblox purse, and not an NFT, and it has up to now no transferability outside of the Roblox world. That’s a serious amount of brand buzz.
From the perspective of content strategy, the industry’s move into web3 has been a success. The Gucci you feel IRL felt like the same Gucci in The Sandbox. Gucci used its Roblox instance to teach consumers about the brand, not just to fill the space with their logos. The benefit of having a content strategy in place is that content can remain on-brand and consistent across IRL and digital channels. A content governance plan allows good content decisions taken today to guide good decisions in the future even when key personnel change. (Here is our Journey Map of Gucci.)
So we expect that Gucci will continue to put out a strong and consistent branding strategy in the months ahead. For investors, Gucci looks pretty attractive with a Price/Earnings (NTM) ratio of 14.6x as compared to 48.8x for Hermès and 23.8x for LVMH. Gucci will remain a brand to watch with so much transition and transformation happening all at once.
You can keep track of Kering’s financial releases on their investors’ page: https://www.kering.com/en/finance/.
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