Kering Biggest Drop in CAC 40 Mid-Session Thursday, Dec 15, 2022 – – 12/15/2022 at 12:05 PM

(AOF) –

Kering

(-5.62% to 495.20 euros)

The luxury group closes the rear of the Parisian index in the middle of the session. JPMorgan lowered Kering’s price target from 690 euros to 620 euros, maintaining its “neutral” opinion. The title is, like other luxury stocks, penalized by the outbreak of Covid-19 contamination in Beijing, as well as by the deterioration of macroeconomic indicators in China.

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key points

– Luxury group born in 1963, owner of the Bottega Veneta, Gucci and Yves-Saint-Laurent brands;

– Turnover of 17.6 billion euros reached 44% in Asia-Pacific, 26% in North America and 23% in Europe%;

– Luxury “pure player” business model, based on higher growth than the markets, on the creative autonomy of the Houses, on the combination of support functions and multifunctional skills and on digital transformation at the service of distribution and the customer;

– Capital controlled by 41.74% (58.44% of the votes) by the holding company Artemis of the founding family, with François-Henri Pinault Chairman and CEO of the 13-member Board of Directors and Jean-François Palus Deputy General Manager;

– Healthy balance sheet, with net debt of €942m at the end of June, compared to €13.7bn in equity and operating cash flow of over €2bn.

challenges

– “Empoweringimagination” growth strategy that aims to increase product quality and brand foundation and control distribution, via e-commerce and continued store network, focusing on three activities:

– YSL: doubling of turnover and operating margin of +33% before 2030,

– Gucci: revenue of €35 billion and operating margin of +41%,

– Eyewear: revenue of €2 billion, against €706 million in 2021 and operating margin of +15%;

– Innovation strategy in 3 pillars:

– investment in companies with innovative business models, MIL labs for sustainable alternatives in jewelry and textiles, use of blockchain for counterfeiting, etc.;

– robustness of the logistical infrastructures at the service of the customer experience: Luce application in the availability of products, virtual offer based on data, internalization of websites, etc.,

– e-commerce growth (13% of sales);

– Environmental strategy “Care for the planet” 2025, reported in an environmental results statement:

– reduce the group’s CO2 emissions by 50%,

– work on the environmental impacts of the supply chain (CO2 emissions, water consumption, air and water pollution, waste production and land use),

– create a “Sustainable Development Index of suppliers” and increase the traceability of animal welfare and the use of chemicals,

– promote “sustainable design”,

– create a Materials Innovation Laboratory (MIL) dedicated to Watches and Jewelry after fabrics and textiles,

– complete the compensation of CO2 emissions) for biodiversity;

– Diversification in eyewear with the purchase of the American Maui Jim.

challenges

– Strong dependence on Gucci, 1st revenue contributor and most profitable brand;

– Acceleration of growth and profitability at YSL and Bottega Venetta and recovery of sales at Gucci, hampered in the 3rd quarter by the slowdown in China and the United States;

– After a 23% gain in revenues at the end of September, anticipation of further growth in sales and turnover in 2022;

– Continuation of share repurchases until the end of the year.

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concerns remain

According to the Federation of Specialized Trade, Procos, in October 2022, activity fell by 1.5% in one year. Even so, the beauty and health activity (+5.2%) and specialized food (+3.5%) are dynamic compared to October 2021. The frequency of points of sale was greatly impacted by fuel problems and bad weather . Compared to October 2019, the pre-covid year, the drop in attendance is very sharp (-20.9% in October). Shopping centers and outskirts are more impacted than city centers with a difference of four to five points.

There are several reasons for concern for the future. The players are feeling a very significant scissor effect given the increase in their operating costs while the evolution of demand is very uncertain. Very few brands are able to pass on the increase in their costs to their selling prices. The federation therefore asks, among other things, to limit the indexation of the Commercial Rent Index to + 3.5% for the rents of all companies in 2023. It also invokes an absolute urgency: limiting energy prices to 2023 and retroact on already signed contracts to prevent the rate of failures from accelerating.

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