Gucci’s Alessandro Michele is continuing to work magic for parent Kering SA — but now Rihanna and Puma are, too.
Bucking the tough environment, Kering on Thursday reported strong first-half gains in net income and revenues as a result of improved performances at its core luxury goods and sport and lifestyle businesses, boosted by Gucci and the last efforts of Hedi Slimane at Saint Laurent, as well as by Puma.
François-Henri Pinault, Kering’s chairman and chief executive officer, said, “Overall growth in our luxury activities in the second quarter significantly outpaced the level reached in the first three months of the year.”
He said Gucci’s creative momentum and ambitious strategy, launched last year under the creative direction of Michele and Gucci ceo Marco Bizzarri, are delivering tangible results, with sales growth “accelerating in the second quarter on top of tough comps” and recurring operating income up 7 percent in the first half.
As for the firms’ Sport and Lifestyle activities group, the chairman said the business has resumed its operating growth due to healthy revenue trends. The core business of the group, Puma, has seen a sharp upturn in sales due to the success of its designs with Rihanna, who it has named creative director.
“Our cash-flow generation is up sharply — it was one of the top priorities we set for ourselves at the beginning of the year. We owe these achievements to our integrated, effective multibrand model, and to well-designed, well-executed strategic action plans,” Pinault said.
For the first six months ended June 30, the company said net income rose 9.9 percent to 464.9 million euros, or $518.8 million, compared with 423.1 million euros, or $472.1 million, a year ago. On an adjusted basis, net income was up 6.5 percent to 520.9 million euros, or $581.3 million, from 489.2 million euros, or $545.9 million, a year ago.
Revenues rose 3.3 percent to 5.69 billion euros, or $6.35 billion, from 5.51 billion euros, or $6.15 billion a year ago. All conversions to the dollar were at average exchange.
In a conference call to analysts, Jean-François Palus, group managing director, said: “Overall, we are quite satisfied with the group’s performance in the first six months of 2016….You will remember that Françoise-Henri and I renewed our strategy [at the beginning of the year with three priorities]. These priorities were dictated by our appreciation of what we must do to anticipate and benefit from the changes in our markets. As we also told you, this is a process that we are engaging for the long term and we don’t believe success can be judged over a quarter or even a semester.”
Palus said execution has been effective from Day One and “many of our brands are clearly outperforming their respective market segments. It is the case for Gucci where the bold decisions we made are really [starting] to pay off.”
Other brands that did well are Alexander McQueen and Stella McCartney, along with some of Kering’s jewelry brands, which Palus said more than helped to offset the temporary slowdown Bottega Veneta is going through.
Jean-Marc Duplaix, chief financial officer, said during the call that the company is back to a more normalized free cash flow generation at 323 million euros, or $360.4 million, in the first half.
The cfo said Gucci posted comparable revenue growth of more than 5 percent, with the second quarter more than doubling the first quarter’s 3 percent gain to reach 7 percent. “Retail was also up 7 percent on a double-digit comp gain last year,” Duplaix said.
For the half, Gucci’s revenues rose 3.9 percent to 1.95 billion euros, or $2.17 billion, from 1.87 billion euros, or $2.09 billion, in the year-ago period. For the second quarter, revenues rose 4.8 percent to 1.05 billion euros, or $1.19 billion, from 1.01 billion euros, or $1.14 billion, a year ago. The cfo said the company is balancing its targeted reinvestment in operating expenditures to support the rejuvenation of the brand and raise its profitability. In part, that means pushing store optimization along with a few select store openings to maximize efficiency and productivity of the network.
In the Luxury group, Bottega Veneta saw revenues fall 10.6 percent in the quarter to 303.3 million euros, to $342.5 million, from 339.2 million euros, or $383 million a year ago. The company said revenue from its directly operated stores was heavily weighed down by lower tourism in Western Europe, although sales to local customers saw improvement. Bottega’s direct sales rose 3.2 percent on a comparable basis, with a “significantly faster pace of growth in the second quarter.” The upswing of the business was due primarily to Chinese customers repatriating their purchasing to the domestic market.
Yves Saint Laurent posted a 20.3 percent gain in revenues to 278.7 million euros, or $314.7 million, from 231.7 million euros, or $261.6 million, a year ago. The company said for the half, revenues from retail sales in directly operated stores accounted for 68 percent of the brand’s total sales. Revenue growth in the second quarter was up 22.1 percent.
Its other luxury brands collectively, which include McQueen and McCartney, rose 1.6 percent in the quarter to 438.9 million euros, or $495.6 million, from 431.9 million euros, or $487.7 million, a year ago.
In the Sports and Lifestyle activities group, Puma posted a 7 percent gain in revenues to 830.5 million euros, or $937.8 million, from 776.2 million euros, or $876.5 million, a year ago. The company said the second quarter marked the eighth consecutive quarter of growth for the footwear category, while Duplaix noted that apparel sales grew 20 percent in the second quarter.
RBC Europe Ltd.’s Rogerio Fujimori said Kering’s first-half figures “were reassuring” due to “significant organic growth acceleration for Gucci.” He noted that Gucci’s profitability was in line with expectations. He also said the Saint Laurent brand “continues to shine.” Fujimori added that Saint Laurent should “easily break” the 1 billion euro revenue milestone, or $1.13 billion, and is “well on track to exceed the 20 percent margin threshold in fiscal year 2016.”
Exane’s Luca Solca noted that growth at Gucci is driven by full-price sales of new collections, in ready-to-wear and shoes, but accelerating also in leather goods. He said European customers were quicker to react to the new artistic direction of the Gucci brand, although recovery is just starting in the American and Japanese markets. The Chinese consumer represents 35 percent of Gucci’s sales and total Chinese spend is up in the second quarter, Solca said.
Shares of Kering on Thursday rose 0.7 percent to close at 160 euros, or $175.97 on the Paris Bourse. Kering posted earnings results after the markets closed.