Kering promises the best for Gucci and Yves Saint Laurent – 06/09/2022 at 17:15

(AOF) – Kering sells 1.15% to €517, down in line with CAC 40. Investors could have welcomed the luxury group’s ambitious targets for its flagship brand, Gucci and Yves Saint-Laurent. But the market prefers to play it safe in the face of a good-value sector exposed to the Chinese economy in an uncertain health at the moment. However, the prospects that Kering promised for her gems are attractive.

Kering played her role in two stages. Yesterday, the company presented its forecast for Yves Saint-Laurent, its second brand with about 14% of turnover and one of the group’s main growth drivers in recent years (more than +17% annual growth in 2015-21). It is very solid.

The luxury group hopes to double the brand’s revenue, increasing it from 2.5 to 5 billion euros, without compromising its image and prestige. In the short term, he aims to get 3 billion.

In terms of profitability, YSL intends to increase its Ebit margin from 28.3% last year to 33% in the medium term, with a step up to 30%.

Stiffel confirmed his buy recommendation and €750 target price on Kering.

Overall, the broker is reassured by YSL’s strong fundamentals and multiple growth levers that will allow it to continue to outperform the sector in the years to come.

UBS confirmed the buy opinion and its €700 target price on Kering.

Citi confirmed the buy recommendation and price target of €740.

The broker believes that brands other than Gucci will increasingly influence the state of Kering’s investment, as evidenced by Saint Laurent’s remarkable transformation over the past decade. Management has presented a detailed and compelling long-term plan that should turn it into a huge brand, according to the consultancy.

A huge brand, a niche that Gucci intends to maintain. At today’s conference dedicated to the Florentine brand, Kering says it expects annual sales of €15 billion and an Ebit margin of at least 41% over the medium term. In 2021, margin is 38.5% and sales are 9.73 billion.

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– luxury collection born in 1963, owner of the brands Bottega Veneta, Gucci and Yves Saint Laurent;

– €17.6 billion in sales generated 44% in Asia Pacific, 26% in North America and 23% in Europe%;

– Modèle d’affaires de « pure player » du luxe, fondé sur une croissance supérieure à celle des marchés, sur l’autonomie créative des Maisons, la mutualisation des fonction supports et les expertises transverses et la transformatione digitale au service de la distribution et clients;

– the controlling share capital of 41.74% (58.44% of the voting rights) by Aremis holdings from the founding family, François-Henri Pinault as President and CEO of the 13-member Board of Directors and Jean-François Balus as Deputy General Manager;

Good balance sheet, with net debt of 168 million euros against 13.7 billion euros in equity, which was boosted in January by the sale of watchmaking activities.

Challenges

Innovation strategy on 3 pillars: new business models, new materials and support functions / investment in companies with innovative business models, such as Vestiaire Collective, MIL Laboratories for sustainable alternatives in jewelry and textiles, resort to blockchain for counterfeiting, etc. / Strong serving logistics infrastructure Customer Experience: Luce on product availability, data-driven virtual rendering, location uptake, etc. / Growth in e-commerce (15% of sales in 2021);

– Environmental Strategy 2025 “Caring for the Planet”, contained in the Environmental Income Statement: use resources in accordance with “planetary limits” and reduce group CO2 emissions by 50% / Act on chain environmental impacts (CO2 emissions, water consumption, pollution Air, water, waste production and land use) Create a Supplier Sustainability Index and raise the traceability of animal welfare, using chemicals Promote “Sustainable Design” Create a Material Innovation Lab (MIL) dedicated to watches and jewelry after fabrics and textiles Complete offsetting CO2 emissions carbon) for biodiversity.

Challenges

– Strong dependence on Gucci, the number one contributor to revenue and the most profitable brand;

– Growth acceleration of YSL and Bottega Venetta and Gucci’s resistance to sequestration in China;

– Impact of the Russo-Ukrainian war: very weak with the closure of 2 stores and 4 pillars;

– 2021 dividend of 12 euros with a deposit.

Downtown stores: An alarming drop in footfall

Between 2013 and 2021, footfall in stores in city centers fell by nearly 40%. This decrease amounted to 29.4% for shopping centers during the same period. Procos stresses that this movement is caused in particular by the proliferation of supply and the development of e-commerce. Small town centers and mega malls are the most flexible. The former responds to local needs and the latter exerts traction on a regional scale. With the Assises du Commerce in December 2021, the government launched three weeks of reflection to define Vision 2030 and support the investments needed for digital and environmental transformations.

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