Kering Looks a Smarter Bet Than LVMH; Luxury-Goods Maker Relies on Several Strong Brands
October 28, 2013 Leave a comment
Kering Looks a Smarter Bet Than LVMH
Luxury-Goods Maker Relies on Several Strong Brands
JOHN JANNARONE
Oct. 27, 2013 1:50 p.m. ET
Some investors think of LVMH Moët Hennessy Louis Vuitton MC.FR -0.46% as a bouquet of brands that will eventually bloom into big money makers. They might save time by instead buying into rival Kering. KER.FR -3.04% Shares of Kering, formerly known as PPR, slipped 3% on Friday after it reported sales at its Gucci brand rose just 0.6% year on year in the three months through September. Gucci accounts for about 63% of Kering’s earnings before interest and taxes, or Ebit, estimates Mario Ortelli of Sanford C. Bernstein.Fortunately, Kering doesn’t have just one star brand.
It also has Bottega Veneta, which saw sales rise 15% thanks to demand for its leather handbags, known for their distinctive “intrecciato” weave. Bottega accounts for 21% of Kering’s Ebit, Mr. Ortelli estimates. Then there is Saint Laurent, where sales increased by a healthy 12%. That label accounts for less than 5% of Ebit, but Kering can probably grow it quickly. Like Bottega, Saint Laurent has plenty of opportunity in the China, where customers increasingly want variety in luxury purchases.
LVMH, meanwhile, gets about half of its Ebit from Louis Vuitton but has no other fashion brands contributing significant profit. Even Loro Piana, which cost LVMH €2 billion ($2.76 billion) for an 80% stake, will probably account for only about 2% of Ebit this year. Nurturing Loro Piana or another brand such as Celine into big money makers could take years.
What’s more, Gucci began to reposition itself as an ultrahigh-end brand with fewer logo items before LVMH began making similar moves. Moving upmarket can hurt profits in the near term because logo merchandise tends to carry high margins.
One challenge for Kering is securing better retail venues for Gucci. Today, Louis Vuitton has superior locations, such as its stores on the Champs-Élysées in Paris and Madison Avenue in New York. Then again, such prestigious addresses didn’t prevent Louis Vuitton’s sales growth slowing in the past several quarters.
Kering trades at just 14.9 times forward earnings, below LVMH’s 17.6 times. While neither should go out of style anytime soon, Kering is better guarded against the occasional wardrobe malfunction.
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