Gucci beat sparks Kering rally as rival Hermes fails to impress

By Alessandro Parodi

July 29 (Reuters) - Kering shares surged 16.9% as flagship brand Gucci's better-than-expected quarterly sales lifted hopes that CEO Luca de Meo's turnaround efforts are gaining traction, in contrast with a slowdown at peer Hermes that knocked its shares lower.

Kering's stock recorded its biggest daily jump in almost 24 years on Wednesday to close at €292.85 ($333.26), after strong U.S. demand for its new handbags lifted Gucci sales and amid concrete debt-cutting efforts by de Meo.

"We believe the group is focusing on the right priorities to regain momentum and re-engage with the aspirational customers particularly for the Gucci brand," HSBC analysts said in a note to clients, upgrading the stock to "buy" from "hold".

Birkin bag maker Hermes reported on Wednesday only a slight acceleration in organic sales, sending its shares down 11% as the market reassessed its high valuation.

A relatively muted sales improvement at industry bellwether LVMH also failed to excite investors on Tuesday amid lingering questions over whether the $400 billion luxury industry may be finally emerging from a prolonged downturn, despite spending by U.S. tech millionaires and renewed demand for jewellery.

LVMH shares closed down 0.5% on Wednesday after a wobbly session on Tuesday.

Wednesday's dramatic swings show "there is an appetite for the luxury sector where there is a clear and solid improvement of the momentum", HSBC analyst Anne-Laure Bismuth said.

GUCCI TURNAROUND GATHERS MOMENTUM

Gucci's second-quarter revenue dipped 2% on an organic basis, the brand's 12th straight quarterly sales drop, but the result beat analysts' forecasts and was a significant improvement from the previous quarter.

Once Kering's profit engine but recently experiencing years of weakening demand, Gucci aims to return to full-year growth this year as part of de Meo's plan to revive the €30 billion French conglomerate's fortunes.

The plan includes 100 store closures by year end and a €1 billion reduction in the group's inventories within 12 months. De Meo said in April he aims to turn Gucci into a "fully client-obsessed organisation" with fewer stores but a better understanding of its customers across regions.

On Tuesday he said the brand's growth will not be linear and the third quarter, which analysts expected to be a turning point, may be "flattish".

The brand will require a strong upward swing in sales in the second half to meet its goal to return to full-year growth, RBC analysts said in a note.

($1 = 0.8787 euros)

(Reporting by Alessandro Parodi in Gdansk. Editing by Milla Nissi-Prussak, Jan Harvey and Mark Potter)