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Report Urges PPR Spin Off

French retail-to-luxury group PPR would do better to split off its luxury goods brands and float the remaining retail divisions rather than sell them off.

PARIS — French retail-to-luxury group PPR would do better to split off its luxury goods brands and float the remaining general retail divisions rather than sell them off, research firm Bernstein Research said in a report Friday.

PPR chairman and chief executive officer François-Henri Pinault has indicated he wants to divest the group’s European retail businesses, which include furniture chain Conforama and books and electronics seller Fnac, to focus exclusively on consumer and luxury brands including Gucci, Yves Saint Laurent and Puma.

“A split would seem preferable to continuing retail assets divestitures and acquisitions of new assets,” analysts Luca Solca and Matt Wing wrote in the report. They recommended listing the retail divisions, as PPR did with its African distribution business CFAO last year. Grouping these into a new retail company “would potentially create two ‘pure plays,’ giving better focus to investors,” they added.

Analysts have estimated Conforama and Fnac could yield about 4 billion euros, or $5.49 billion at current exchange rates, which PPR is expected to use to shop for apparel and accessories brands in a move to create a mass market division mirroring the luxury goods unit, Gucci Group. However, Bernstein cautioned that turning Puma into a growing lifestyle brand was ambitious enough without adding brands to the mix.

“We also feel this could hardly be the right time to ‘double up’ on Puma, as the value creation bet is yet to be won,” the report said. “We like PPR on its ability to drive growth with its luxury brands, as well as on its ability to maintain efficiency and price discipline with its general retail business.”