Kering (NR/A-) 1H (to June) Results

We said price to BBB+ ratings after 1Q results. We reiterate that view on still-in free-fall sales and rough 2H guidance (-30% on EBIT). The unch dividend payments and "prestigious" property acquisition pushing net debt up was already expected by S&P when it downgraded into A- in April. Disappointment for S&P will be earnings; its' expectations then were "broadly stable or slightly negative year-on-year comparable revenue growth following a weak start, and some gradual improvement in the second half.". Though guidance is on EBIT, even on the current (lower) margin it's running we see it implying HSD to LDD headline fall for the FY. As we said previously caution for shorts, this name tends to mean revert after sell-offs on recent misses. S&P may choose to put it on neg. outlook and wait for FY results as well.

• 1H revenue at €9b (-11% on LFL and reported) and is a miss on consensus at -9.4%.
• Gucci (45% of group sales) fell -18%. Only the two smallest segments grew; Bottega Veneta (9%) +3% and eyewear & corporate (12%) +7%.
• Western Europe -8%, NA -11%, Japan +22%, APAC -22% and Rest of World +2%. China + Japan is not horrible but continuing HSD to LDD falls in NA/Europe indicates clear brand issuers it's having vs. peers.
• Adj. EBIT was €1.6b (-42%) and in line with expectations. It's at a 17.5% margin down 9.5ppt yoy. Gucci isn't the worst on EBIT; Other Houses (19% of group) only fell -6% over the half on headline yet EBIT is down -80%.
• FOCF was €1.1b and it says ex. acquisition of "a prestigious property on 5th Avenue" it would have been €1.9b. Capex (ex. RE acquisition) is down from €1.8b to €1.4b helping alleviate some of the cash impact.
• Net debt (ex. lease liabilities) was €9.9b, a sizeable increase from the €8.5b at the end of last year. Lease liabilities fairly flat at €5.5b to leave total net at €15.4b.
• Its pointing to the property acquisition for €0.8b (S&P already accounted for), dividends totalling €1.7b (S&P assumed unch divvy policy/50% pay-out ratio) and "usual seasonality" for debt increase. We see 1H tending to be slightly stronger for it on cash flows so not sure why its adding that to the list of reasons.
• Big blow is guidance; adj.. EBIT "could be down approximately 30% yoy" in 2H. Consensus was at -10% expecting a 1H to 2H pickup...its implying there will be none and instead another -11.5% fall half-on-half.