Gucci's parent company, Kering Group, released its Q2 earnings report, which showed a decline in performance. The company acquired a 30% stake in Valentino. | Financial Report Insights

On Thursday, July 27th, Gucci and Yves Saint Laurent's parent company, Kering Group, released their second-quarter and first-half financial reports, which ended on June 30th.

After the release of the reports, Kering Group's European stocks maintained a nearly 3% increase at the close, while the ADR of its American stocks quickly narrowed from a nearly 3% increase to a flat position.

In the first half of the year, the group's overall revenue was 10.14 billion euros, which is basically in line with analysts' expectations of 10.19 billion euros. The same-store sales revenue for the same period increased by 2% compared to last year, with a market expectation of 2.86% growth.

The recurring operating profit for the first half of the year was 2.74 billion euros, a slight decrease from the 2.82 billion euros in the same period last year, with a market expectation of 2.76 billion euros. The operating profit margin decreased from 28.4% to 27%, and the net profit was 1.79 billion euros, also lower than the 1.99 billion euros in the same period last year.

In the second quarter, the group's revenue increased by 2% to 5.06 billion euros compared to the same period last year, showing growth from the first quarter's 4.97 billion euros, but falling short of the market expectation of 5.15 billion euros. The same-store sales revenue in the quarter increased by 3%, also lower than the expected growth of 4.46%.

In the second quarter, the group's direct retail network, including e-commerce websites, saw a 4% increase in revenue compared to the same period last year. The Asia-Pacific region and Japan performed well, while Western Europe showed steady growth. However, "sales declined in the North American market," similar to the trend of competitors and luxury giant LVMH.

As the main contributor to the group's revenue and the major brand accounting for two-thirds of the overall profit, Gucci's second-quarter revenue was 2.51 billion euros, also lower than the expected 2.6 billion euros, with a year-on-year growth of 1%, significantly weaker than the expected growth of 4.23%.

This brings Gucci's revenue for the first half of the year to 5.1 billion euros, with comparable sales revenue growth of 1% and a 1% increase in direct retail network sales. However, compared to the first half of last year, wholesale revenue decreased by 3% year-on-year. The recurring operating profit was 1.8 billion euros, with an operating profit margin of 35.3%.

In addition, due to increased investment to support weaker brands, Gucci's operating profit for the first half of the year decreased by 4%, including Balenciaga, which caused advertising controversy last year, and other brand's operating profit plummeted by 34%.

According to analysis, Ke Yun Group's second-quarter sales fell short of market expectations and continued to lag behind competitors while seeking to turn around the business of its star brand, Gucci.

In contrast, other luxury giants achieved double-digit growth in their core businesses in the second quarter. For example, LVMH, the largest European company by market value, saw a 21% increase in sales in its fashion and leather goods division (headquartered by Dior and Louis Vuitton).

It is worth noting that Ke Yun Group also announced on Thursday that it will acquire a 30% stake in Italian fashion brand Valentino from Qatar's investment fund Mayhoola for 1.7 billion euros in cash, becoming a major shareholder and obtaining a seat on the board.

The announcement shows that Ke Yun Group and Mayhoola Fund will establish a broader strategic partnership, and Ke Yun Group has the right to acquire 100% of Valentino's shares before 2028, which may result in Mayhoola becoming a shareholder of Ke Yun Group.

Valentino has 211 directly operated stores in more than 25 countries worldwide, with a revenue of 1.4 billion euros and a recurring EBITDA profit of 350 million euros in 2022. The transaction is expected to be completed by the end of 2023, subject to approval from relevant competition authorities.

On Tuesday, July 18, Ke Yun Group announced a major leadership change in the Gucci brand in an effort to revitalize its appeal, which caused its European stock price to jump nearly 7%, the largest increase in eight months.

Among them, the current CEO of Gucci, who has been in charge since 2015, will step down on September 23 and will be succeeded by Paolus, the capable deputy of Ke Yun Group's CEO. Gucci's former creative director, Alessandro Michele, left in November last year, and the new director, Sabato de Sarno, plans to launch his first collection in Milan in September this year.

Analysts, including Citigroup, generally have a positive view of Ke Yun Group's changes in the Gucci management team, believing that it will improve the decision-making process and demonstrate Gucci's determination to transform. This year, Ke Yun Group's stock price has risen by about 11%, lagging behind competitors LVMH and Hermes, which have risen by more than 25%. During the same period, the S&P 500 Global Luxury Index has risen by about 22%.