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Cash-Flush Kering Sees ‘Sharp Rebound’ in Revenue

While parts of the world are still dealing with the impact of the coronavirus pandemic, luxury sales at Kering have since rebounded from year-ago lows, with strong Gucci sales leading its brand portfolio.

In a Nutshell: Noting that the company’s performance for the first half was “excellent, consistent with the past,” Jean-François Palus, group managing director, gave investors and analysts at a company conference call an overview of what to expect for the second half.

“We are not slowing down the pace of our strategic initiatives. We are on track to elevating our distribution and rightsizing wholesale,” Palus said.

While he noted that the pandemic is “not behind us” and the operating environment can change rapidly, the company is “firmly back” on its profitable growth trajectory as far as factors that it can control.

“Our brands are highly desirable and well positioned in their respective segments. Our strategy is straightforward and we have the financial resources to pursue our goals. With an abundance of initiatives and activations across the board scheduled for the second half, we are confident in our prospects for the full year,” Palus said.

Kering said sales in company-operated stores accounted for 80 percent of total first-half sales, driven by “excellent momentum in North America and the Asia-Pacific region.” On a comparable basis, sales from the directly operated store network, including e-commerce, was up 60.1 percent versus the first half of 2020 and up 11.2 percent over the comparable 2019 period, “even though an average of 17 percent and 13 percent of the store network remained closed during the first quarter and second quarter of 2021, respectively.”

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Rival LVMH also noted the rise in luxury sales in the U.S. and Asia.

Kering’s cash cow Gucci continue to strengthen its position with local customers, the company said. Sales for the half generated from company-operated stores, which accounted for 91 percent of the brand’s total revenue, rose 59.0 percent and 6.3 percent for the comparable 2020 and 2019 periods, respectively. In line with the plan to transform distribution, wholesale revenue was down 9.6 percent in 2020 and down 40.8 percent from 2019 levels for the half.

Kering said Gucci’s “sales growth accelerated significantly” in the second quarter of 2021, with an increase of 86.1 percent on a comparable basis. Sales of company-operated stores rose 93.0 percent in the quarter, representing an increase of 10.7 percent when compared with the second quarter of 2019.

During the company call, Jean-Marc Duplaix, chief financial officer, said, “After a well-controlled margin dilution last year, we are firmly back on our profitable growth trajectory already exceeding for some of our brands the record levels set in H1 2019.”

While there were some disruptions during the half due to store closures, Duplaix said Gucci deployed a “wealth of clienteling and in-store initiatives. They included high-AUR events, dedicated focus on the below-line, innovative visual displays and seasonal drops that resonated with our clients. Gucci strengthened its positions across all customer clusters in the U.S. and Mainland China with notable success in the higher end clientele segment. The house also leads the way in innovative approaches exploring emerging models on gaming platforms to tap into new audiences.”

The Aria collection will hit store shelves in late September, and Kering is planning a schedule of events to commemorate Gucci’s centennial, Duplaix said.

The French luxury firm also said its Yves Saint Laurent (YSL) brand saw revenue from company-operated stores rise 74.9 percent year-over-year and up 17.3 percent versus the comparable 2019 period. “Sales bounced back in all geographic regions, and particularly North America and Asia-Pacific, reflecting the ongoing success of both the House’s iconic lines and its new collections,” Kering said. Wholesale revenue for the period rose 25.4 percent.

For the second quarter, revenue for YSL rose 118.5 percent on a comparable basis, while sales at company-owned stores rose 26.1 percent when compared with the same 2019 period.

Leather goods, ready-to-wear and shoes were “all up double-digits on a two-year basis” at YSL, Duplaix said.

During the half, Kering contributed to Vestiaire Collective’s 178 million euros ($210.4 million) funding round, and finalized its sale of a 5.9 percent stake in Puma for about 805 million euros ($951.4 million), leaving it with a 4 percent share. Kering also helped fund U.K. luxury handbag subscription platform Cocoon‘s latest round.

Net Sales: Revenue for the first half rose 49.6 percent to 8.05 billion euros ($9.51 billion) from 5.38 billion euros ($6.36 billion). Kering said consolidated revenue was up 54.1 percent from the first half of 2020 and 8.4 percent higher than the comparable 2019 period.

E-commerce revenue climbed 78.5 percent year-over-year across all houses, representing 14 percent of total retail sales in the first six months of 2021, Kering said. In addition, wholesale revenue rose 29.8 percent, on a comparable basis. In general, wholesale revenue has been down 4.0 percent for the past two years as part of Kering’s strategy of streamlining its wholesale networks.

For the second quarter of 2021, comparable revenue growth rose 95.0 percent year-over-year and up 11.2 percent versus the second quarter of 2019. Kering also said that second-quarter comparable retail sales, including e-commerce, surged 97.9 percent, driven by North America, where sales spiked 263 percent, and Asia-Pacific, which saw sales rise 53 percent.

By brand, Gucci revenue for the half rose 45.8 percent to 4.48 billion euros ($5.29 billion), returning to pre-pandemic levels. At YSL, sales rose 53.5 percent to 1.05 billion euros ($1.24 billion). Revenue at Bottega Veneta was up 40.6 percent to 707.6 million euros ($836.3 million). The group’s other houses, which include Balenciaga and Alexander McQueen, rebounded sharply as revenue rose 60.5 percent to 1.48 billion euros ($1.74 billion). Rounding out the balance of revenue for the half was a category called “Corporate and other,” which includes Kering Eyewear, where revenue rose 67.3 percent. The company said Kering Eyewear’s contribution to first-half consolidated revenue totaled 326.4 million euros ($385.8 million), “after elimination of intra-group sales and royalties paid to the Houses.”

Net Income: On Tuesday, the French luxury purveyor said net income rose more than five-fold to 1.48 billion euros ($1.75 billion) from 272.6 million euros ($322.2 million) a year ago. On a continuing operations basis, net income jumped 159.5 percent to 1.48 billion euros ($1.75 billion) from 569.3 million euros ($672.8 million) for the first half of the year.

The company said its free cash flow from operations rose 316.2 percent for the half, when compared to 2020, to a record 2.35 billion euros ($2.78 billion).

“Though it remains highly dependent on developments in the health situation and associated restrictions across countries and regions, the luxury market has posted a significant rebound since the beginning of the year,” Kering said. The company said it is “positioned to fully benefit from the upturn, having successfully safeguarded its profitability while maintaining the expenditure and investments required to strengthen its Houses and ensure their potential to bounce back.”

CEO’s Take: “Kering delivered excellent performances in the first half and resumed its trajectory of strong, profitable growth. All our Houses contributed to a sharp rebound in total revenue, which comfortably exceeded its 2019 level, with a remarkable acceleration in the second quarter,” François-Henri Pinault, chairman and CEO, said. “While returning to substantial profitability and leveraging the desirability of our brands, we are stepping up the pace of our investments in our Houses and strategic initiatives, notably to enhance the exclusivity and control of our distribution. Our teams are demonstrating their agility in this fast-moving environment, and we have the right assets, resources and strategy to successfully pursue our journey.”