SHORT KERING

Kering has participated in this broader China rally, up almost 10% since LVMH confirmed that FLG growth was actually 2% without some discontinued items.

Expectations are quite high for KER. Following the Gucci relaunch in Q3 last year and a 4.8% growth print the market is going for another 5% this quarter. This is on easy -7.9% comps. Consensus is between 5-6% for the total group on easy -0.6% comps.

However, the Puma strength is very well flagged and the YSL director leaving is likely to have had a small impact. Trends are poor in general. With weak tourism volumes as a result of the Paris and Brussels attack which were felt throughout Q1. A continued slowdown in the US and poor trading in HK as flagged by Prada, Burberry and LVMH so far.

Going into next quarter comps become far more difficult. Gucci is lapping a 4.6% comp and the group 7.8%. Trends are unlikely to lessen with pricing pressures being felt keenly across regions.

Some will argue that at 14x next year this is discounted. However if you disguard preferential tax treatment it actually trades more expensive than LVMH on EV/EBIT and more inline with the sector. This is without really having proven the turnaround story in Gucci yet – 1 quarter does not make a trend.

TRADING SELL.