François-Henri Pinault, chairman and chief executive officer of the French group, hopes to triple the size of its core luxury and sport & lifestyle divisions by the end of the decade and increase revenues to 24 billion euros, or $31.5 billion at current exchange — roughly on a par with the sales posted by LVMH Moët Hennessy Louis Vuitton in 2011.
Pinault revealed his ambitions for PPR, which is shedding its retail activities to focus on high-growth potential brands like Gucci, Puma and Bottega Veneta, at a press conference following the publication of 2011 results that showed a record 26.4 percent jump in net profit from continuing operations. RELATED STORY: PPR Adds to Executive Committee >>
“Our primary ambition is to build a group with revenues of at least 24 billion euros by 2020, with roughly 60 percent generated by the luxury division and 40 percent by sport & lifestyle,” Pinault said.
“Our brands are powerful and have considerable potential for organic growth, because they are in line with the underlying consumer trends of today: self-fulfillment, a certain hedonism, consumers’ sense of responsibility for their choices and the convergence of tastes from country to country and from generation to generation,” Pinault added.
He said prospects for 2012 were good, despite some economic uncertainty, noting that sales so far this year had maintained their momentum from the fourth quarter of 2011. “PPR is confident that 2012 will be another year of sustained revenue growth and improvements in our operating and financial performances,” the executive said.
The European debt crisis has not only hampered consumer spending in the euro zone, but is also dragging out the off-loading of PPR’s mail order business Redcats, after banks last summer withdrew their original financing deal for potential bidders.
PPR group managing director Jean-François Palus said talks continue with less than 10 interested parties, mostly private equity funds, and the sale of the division — which some analysts estimate has an enterprise value of 1.4 billion euros, or $1.8 billion — would be concluded once debt market conditions ease.
Though it remains unclear when the deal could be finalized, PPR has already stripped out revenues from Redcats and the Italian division of books and electronics retailer Fnac from its full-year results, and restated 2010 figures to reflect their reclassification as “non-current assets held for sale and discontinued operations.”
As a result, net profit from recurring operations totaled 1.05 billion euros, or $1.47 billion, in 2011 versus 835 million euros, or $1.11 billion, the previous year. Taking into account Redcats and Fnac Italy, net profit rose 2.3 percent to 986 million euros, or $1.37 billion, in 2011.
Recurring operating income rose 16.9 percent to 1.60 billion euros, or $2.23 billion, with the operating margin hitting a historic high of 13.1 percent, up 70 basis points versus 2010. Dollar figures are converted at average exchange rates for the periods to which they refer.
In 2011 as a whole, the group recorded sales of 12.23 billion euros, or $17.03 billion, up 11.1 percent on the previous year. Revenues rose 11.2 percent in the fourth quarter to 3.63 billion euros, or $4.89 billion.
Though the results were above market consensus estimates, shares in PPR closed down 3.3 percent at 120.40 euros, or $159.55, on disappointment over management’s decision to keep its dividend payment unchanged from last year at 3.50 euros, or $4.60, a share.
Analysts also noted that fourth-quarter sales at PPR’s cash cow brand Gucci came in below estimates, totaling 886.5 million euros, or $1.19 billion, 13.6 percent higher in reported terms and up 12.2 percent on a comparable basis. This compared with an HSBC forecast for a 16 percent increase in organic terms.
Palus — like Pinault, proudly wearing a three-piece suit from PPR’s latest acquisition, Brioni — did not provide a specific explanation for the slowdown, but noted that Gucci limited supply to wholesalers in Italy in the fourth quarter as part of its ongoing efforts to clean up distribution. He noted that sales in Gucci’s store network were up sharply in 2011 as a whole, with double-digit gains in all product categories, increased footfall and rising average prices.
Despite costs linked to celebrations of the brand’s 90th anniversary and the opening of a Gucci museum in Florence, the brand’s operating margin gained 180 basis points last year to reach a historic high of 30.2 percent, he added. Gucci had 376 stores at the end of 2011 and planned to open 45 more in 2012, including 20 in the Asia-Pacific region.
The luxury division as a whole posted revenues of 1.4 billion euros, or $1.88 billion, in the fourth quarter, up 22.1 percent from the same period a year earlier, thanks to stellar growth at Bottega Veneta and Yves Saint Laurent, whose couture division turned a profit for the first time last year.
At a luncheon later with journalists, Pinault reiterated his confidence for 2012, citing a “structural” trend that should see the luxury goods sector continue to expand for the foreseeable future. He added that young demographics in emerging markets underpin strong growth prospects for sport and lifestyle products.
Pinault noted that he recently visited Indonesia, for example, and predicted that it “could become a bigger market for luxury than India,” given the right political will in the nation.
The executive also divulged that Balenciaga would continue its global retail expansion with a new Paris location at 336 Rue Saint-Honoré.
He lauded that YSL made a “giant step” forward in terms of profitability, and that growth prospects are “very good.” Full-year sales advanced 31.4 percent while operating income grew more than fourfold. However, asked if the house would renew its contract with Stefano Pilati, YSL’s creative director since 2004, Pinault replied with a big smile: “I won’t make any comments about any designers.”
Earlier at the press conference, Pinault broke his silence on YSL’s bitter legal battle with French footwear designer Christian Louboutin, saying he was confident YSL would win the right to continue selling shoes with red soles.
“We won the first proceedings in quite precise, clear terms and I am therefore very confident with regard to this case, even if I regret it, because these are two great houses and I think we have better things to do than to fight in court over a question of color,” he said.
Revenues at books and electronics retailer Fnac fell 3.3 percent during the period to 1.45 billion euros, or $1.95 billion. The company last week replaced the head of its French division, naming former Fnac Spain general manager Enrique Martinez to the post.
PPR’s financial documents revealed that Redcats recorded sales of 3.05 billion euros, or $4.24 billion, in 2011 versus 3.12 billion euros, or $4.14 billion, the previous year. Operating income fell to 153 million euros, or $213 million, from 215 million euros, or $285 million, a year earlier.
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