Interactive Investor

Must read: slew of earnings including Reckitt and Kering

Our head of investment rounds up the morning's big news.

25th October 2023 09:02

Victoria Scholar from interactive investor

GLOBAL MARKETS

European markets have opened lower with earnings taking centre stage. In terms of the banks, reports have been mixed with investors cheering Deutsche Bank AG (XETRA:DBK), which reported better-than-expected quarterly net profit, while they are struggling to get excited by updates from Banco Santander SA (LSE:BNC) and Lloyds Banking Group (LSE:LLOY).

Plans for government stimulus in China provided a slight boost to its equities overnight in an otherwise mixed session across Asia.

Last night, Microsoft (NASDAQ:MSFT) reported forecast-topping sales, lifting shares after hours, while Alphabet (NASDAQ:GOOGL) fell sharply after its quarterly cloud revenue figure fell short of expectations. Focus shifts to Meta Platforms  (NASDAQ:META)’ earnings in the tech sector later today.

RECKITT

Reckitt Benckiser Group (LSE:RKT) reported third quarter like-for-like net sales growth of 3.4% missing analysts’ expectations for growth of 3.7%. Its hygiene and heath divisions outperformed, while revenue in nutrition dragged on its performance. The consumer goods giant behind brands such as Dettol and Nurofen said that it is imminently beginning a £1 billion share buyback programme over the next 12 months and said that it is on track to deliver its full-year targets. This is the first set of results under new CEO Kris Licht, who took over the top job at the start of October.

Competitor supply issues in nutrition provided a temporary benefit last year and therefore resulted in tough year-on-year comparables this year. Plus, Reckitt also struggled with unfavourable currency swings and small negative net M&A impact. While Reckitt has been raising prices to offset its inflationary cost pressures, group volumes declined by 4.1% year-on-year highlighting the fact that consumers are having to spend more to obtain fewer goods. But Reckitt said it has started to see pricing level off”.

Consumers have also been trading down from branded household goods to cheaper, unlabelled alternatives, at the expense of the consumer goods companies such as Reckitt and Unilever (LSE:ULVR).

Shares in Reckitt are under pressure today and are roughly unchanged year-to-date. However, before today, they had been rebounding over the last month as investors increasingly turn towards defensive sectors such as consumer staples to shelter from the macroeconomic storm clouds and elevated bond yields.

KERING

Kering SA (EURONEXT:KER) reported a 9% slumped in third-quarter revenue to 4.46 billion euros, sharply below analysts’ expectations for a drop of 6%, sending shares into the red. Gucci, which is responsible for around half of Kering’s sales reported a 7% slump in comparable revenue to 2.22 billion euros, while Yves Saint Laurent and Bottega Veneta reported declines of 12% and 7% respectively. 

While Gucci has been extremely popular in recent years, like all fashion trends, they come and go, and the fickle fashionistas have been moving beyond Gucci lately in the hunt for the latest hot brand, weighing on Gucci’s sales. Once a luxury brand’s proliferation becomes too widespread, it loses its allure and demand can quickly fade. CEO Jean-Marc Duplaix said that he’s trying to shift the brand to become more upmarket once again. Gucci appointed a new creative director this year to try to kickstart a revival and change in direction.

Kering’s quarterly performance echoes that of LVMH Moet Hennessy Louis Vuitton SE (EURONEXT:MC) with both luxury brands grappling with weakness in demand amid the sluggish global growth backdrop with a softening consumer stateside and as China’s post-Covid release of pent-up demand fades. While luxury was certainly the place to be for investors at the start of the year, the sector’s allure has been fading with shares in Kering shedding over 30% in the past six months and LVMH down over 20%.

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