Mixed fortunes for Kering

France
Published:  17 February, 2015

Kering, the French luxury and lifestyle company said on February 17 its net profit fell in 2014, reflecting lower demand for accessories and clothing at Gucci, its flagship label, and despite initial signs of a turnaround at Puma, its struggling sportswear brand.

Kering posted an operating profit of €1.66 billion euros, or $1.9 billion, down 5% from €1.75 billion in 2013. Revenue rose 4% to €10 billion, bolstered by strong growth at the fashion brands Yves Saint Laurent and Bottega Veneta. Net profit from recurring operations fell 4.4% to €1.2 billion.

In an effort to halt the slump at Gucci, which accounts for 79% of the group’s revenue, Kering late last year announced the departure of its top two executives. Kering hopes the new management, led by Marco Bizzarri as chief executive, and the designer Alessandro Michele as creative director, will revive the brand, whose profit slid nearly 7% last year to €1 billion, on sales that were nearly flat, at €3.5 billion.

Revenue at Gucci has stalled in recent years as luxury consumers, particularly in China, have turned away from the brand’s signature logo-emblazoned handbags toward subtler fashion statements.

Leather goods make up about two-thirds of Gucci’s sales and the company also owns a small number of tanneries to maintain supply of high-end leathers for the Group's brands. The brand has recently responded to customers’ logo fatigue by increasing more discreet branding among its product. Items without logos now represent more than 60% of its goods.

While operating profit across all of Kering’s luxury brands fell 1%, a number of its smaller labels experienced strong growth. Sales at Yves Saint Laurent jumped 27% last year compared with a year earlier, while profit rose 37% to €105 million. Earnings at Bottega Veneta, known for its woven-leather handbags, climbed 8% to €357 million, on sales of €1.1 billion.

Over the past two years, Kering, which is based in Paris, has sought to transform itself into a so-called pure apparel and accessories group.

Revenue at Kering’s lifestyle and sportswear brands rose 3.5% in 2014 from a year earlier, to €3.2 billion, representing about one-third of group sales.

Under the leadership of its new chief executive, Bjorn Gulden, Puma has restructured its global retail network, narrowed its product range and sought to inject new buzz into the brand, which remains a distant third behind its rivals Nike and Adidas.

But those efforts have been slow to bear fruit. While Puma’s sales rose 3.5% last year, to €3 billion, that growth was outpaced by the group’s smaller sportswear brands, including Volcom and Electric. Puma’s operating profit fell 33% to €128 million, reflecting turnaround and marketing costs.

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