Saint Laurent and Bottega power ahead for Kering but about-to-change Gucci stays sluggish

Small (by comparison) is beautiful. At least it is for Kering as the luxury goods group delivered “another year of solid performances” Tuesday,  mainly thanks to its Saint Laurent and Bottega Veneta brands. OK, they’re not exactly tiny brands but they did manage to steal the thunder of still-sluggish giant Gucci and of Puma (WGSN News Feb 16), which are busy working on turnarounds under new leaderships.

Despite the poor performances of those two main brands, Kering was able to post a 4.5% year-on-year revenue rise to €10.04bn, just short of analysts’ €10.05bn view. And for once, it wasn’t a story of buoyant emerging markets and sluggish mature ones. Luxury business sales rose 4.9% to €6.76bn, driven by those stores the company directly operates in its mature markets.

What did this mean for profits? While 2014 net profit soared to €528.9m from €49.6m in 2013, recurring operating profit fell 5% to €1.67bn and the operating margin fell to 16.6% from 18.1%.

But there was good news in those recurring figures even though operating profit from the luxury business slipped 1.1% to €1.666bn, with Gucci down 6.7% to €1bn. Saint Laurent jumped 37.2% to €105m and Bottega Veneta rose 8% to €357.2m while “other” luxury brands inched up 1.8% to €147.3m.

CEO François-Henri Pinault still called Kering’s sales performance “dynamic” reflecting a diverse portfolio that ensures if a couple of brands are suffering, there are others able to fill the void.

So just how did those ‘smaller’ brand fill that void?

2014 sales for Saint Laurent, which is being transformed into a cool and edgy brand under the style leadership of Hedi Slimane, surged 27% to €707.3m. The brand’s revenue has doubled in the past three years, and 2014’s success was propelled by directly operated stores, soaring 40.3% at constant exchange rates, with all main product categories and geographic areas reporting solid growth.

Meanwhile, Bottega Veneta jumped 11% to €1.13bn. Its revenue has more than doubled since 2010 with directly operated stores accounting for 80% of total sales in 2014 and same-store sales up 8%. Leather goods remained the brand’s core business last year, with “extremely robust” growth of 14.3%, “evenly balanced” between its historical and emerging markets, which recorded respective comp revenue increases of 13.9% and 10.9%.

“Other” luxury brand sales – which include Stella McCartney and Alexander McQueen – rose 14% to €1.42bn. The main growth drivers were the couture and leathergoods, up 9% on a comps basis. Its timepieces and jewellery brands, however, “felt the impact of tougher market conditions”, with the timepieces category particularly affected, Kering said.

Not that all the smaller brands are bringing a smile to the Kering face. The company said a sale of footwear brand Sergio Rossi is an option under consideration. There have been reports of it having been on the block for some time with no takers.

And Gucci? Well, the news wasn’t all bad, although what the company called a “mixed” 2014 performance did reflect a 1.8% dip in revenues to €3.49bn.

But Gucci’s directly operated store sales improved 2%, notably in mature markets and especially in Japan (+9.5%) and North America (+5.4%), Kering said. By product category, the brand posted “robust” handbag sales as well as “sustained” performances for shoes and ready-to-wear.

There was a slight feeling with the announcement that Kering is holding off talking more about Gucci until it sees the impact of that brand’s own transformation, which will kick off in earnest in a couple of weeks during the Milan shows.

The impact of new creative chief Alessandro Michele will be felt more deeply when he unveils the autumn/winter 2015/16 womenswear collection after having only five days to work on the men’s offer he showed last month.

However, the parent said it would focus on quality of service in Gucci stores and the attraction of its ready-to-wear collections.

CEO François-Henri Pinault said that delivering organic growth remains Kering’s “number one priority” in 2015 despite an “unsettled” macroeconomic and currency environment.

“I am confident in the group’s ability to achieve sustainable profitable growth while focusing in the shorter term on our brands’ cash flow generation,” he added.

Kering also said the weak euro and strong dollar were likely to boost revenue this year but could hit margins in H1 due to its currency hedging policies.

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