Kering signals possible M&A and US expansion as Gucci benefits from luxury sales boom

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PARIS, Feb 17 (Reuters) – Gucci owner Kering (PRTP.PA) said on Thursday it was looking for possible acquisitions and could expand into other U.S. cities, after that a surge in sales showed the resilience of demand for luxury goods even as inflation soars. .

The luxury industry has recovered quickly from the fallout of the coronavirus pandemic, with sales for most groups now above pre-crisis levels, and thanks to strong demand, it has room to increase further. prices in the face of rising costs.

Sales at Kering – whose brands also include Yves Saint Laurent, Bottega Veneta and Balenciaga – jumped nearly a third in the last three months of 2021 to 5.41 billion euros ($6.14 billion ), fueled by a similarly large surge at Gucci that was nearly double analysts’ average forecast of 17%.

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Gucci’s comeback after a disappointing third quarter is a big relief for Kering – the brand accounts for 60% of its revenue and around 70% of its profit. The group also said current operating profit rose 60% last year, to a record high of just over 5 billion euros, helping to send its shares up 7% at 1400 GMT. .

After cutting advertising when the pandemic hit in 2020, Kering increased its marketing spend to boost its star brand in 2021 and this paid off particularly at the end of the year, with the arrival of the new Aria collection. in stores.

A broader offering and increased focus on high-end fashion and accessories – executives said Gucci’s average selling price had risen significantly – were behind the surge in revenue, U.S. growth and Chinese boosting sales.

The release in November of Ridley Scott’s film “House of Gucci”, although not directly linked to the brand, also helped to increase the visibility of his creations.

Kering Chairman and CEO Francois-Henri Pinault said Gucci, which experienced meteoric growth in 2015-2019 but has since come under intense market scrutiny as its momentum slowed, had started 2022 in line with the strong trend seen at the end of 2021.

The group’s other brands also performed well. Yves Saint Laurent, its second-biggest brand, saw sales jump 47% in the fourth quarter.

Pinault gave his strongest indication yet that Kering, which had free cash flow of almost 4 billion euros in 2021 and near zero debt, could soon embark on a takeover operation .

“It is certain that acquisitions could make sense in the near future for the group,” he said.

He added that he did not see Kering expanding into hospitality, but jewelry was an area with great potential, possibly through acquisitions.

Fueled by its reliance on Gucci, speculation has swirled that Kering may be considering major purchases to diversify its portfolio – especially as its biggest rival LVMH widened last year with its $15.8 billion purchase. dollars from the American jeweler Tiffany.

As the U.S. luxury market booms, Pinault said Kering plans to expand its store network in second- and third-tier cities such as Atlanta, Charlotte, Nashville and Austin.

“We are reviewing our store geographic coverage to cover those areas that are new to us,” he said, adding that the new stores include a Gucci store in Austin, Texas.

Kering chief financial officer Jean-Marc Duplaix said Gucci – which raised prices twice in 2020 and 2021 – would raise prices again in a “targeted manner” this year, and also flagged price increases for the other brands of the group.

The group’s shares have gained 28% over the past year and Duplaix said that despite rising raw material and transport costs, the group was confident it could continue to improve profitability. Rival Louis Vuitton raised prices this week to protect margins.

($1 = 0.8807 euros)

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Reporting by Mimosa Spencer and Silvia Aloisi; Editing by Kenneth Maxwell and Susan Fenton

Our standards: The Thomson Reuters Trust Principles.

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