In this company overview we will analyse the French company $KER.PA (Kering SA) which has been operating in the luxury goods industry since 1963.
Our objectives are to understand to understand how the brand had sustained itself during the pandemic, the near-future outlook of the company, the risk that they might face in the future and lastly if the firm is a good candidate for a long term investor.
2020 - the pandemic
In 2020, like most of the industries, the luxury goods industry has been negatively impacted by the COVID-19 pandemic due to the store closure of Kering’s subsidiaries. The financial year company's results in 2020 have been decreasing as their revenue has been down by -18% from 15.9€ billion to 13.1€ billion and their bottom line by -39% to 1.972€ billion YoY.
If we look more in details, not every brand have performed the same. For example, YSL and the other brands have all been negatively performing as the sales of each brand have decreased between -11% and -15%. Surprisingly, Bottega Veneta has performed well considering the closure of the stores, as they have managed to increase their sales up to +3.7% compared to 2019.
The metric that I find interesting to have a look at is the operating profit margin, and Kering went down going from 34.4% in 2019 to 23.9% in 2020.
Among the brands owned by the parent company Kering, Gucci is the brand that has been the most impacted during 2020, and is also the brand whose performace has impacted Kering the most. in fact, Gucci is seen as a key brand for the parent company as it usually accounts for more than half of all of the revenue of all the brand combined.
In 2020, Gucci has seen its revenue dropping dramatically by -17.6%, The operating profit margin of Gucci only has been going from 41% in 2019 to 35% in 2020.
Regarding the operating profit margin, I've done a company overview of Hermes etoro.tw/3dey5cr, and the french luxury clothing company has had an operating profit margin of 32% during FY 2020. Gucci has a higher operating profit margin than Hermes, but Kering and all its brands, as mentioned above, have an operating profit margin at 23.9% and then fall below Hermes.
Gucci and its parent company Kering have not shown any resilience during 2020 compared to its competitors such as Hermes.
Near-future sales outlook
Kering, as its competitors $RMS (Hermes International) , is implanted in Asia. During the last earnings call in February 2021, Kering has announced that its key brand Gucci has experienced a very strong demand from its Chinese customers.
Kering has then understood the sales potential of its brand Gucci that could be done in Asia and after an organic growth since 1999, Gucci is ready for a fierce competition in this geographical part of the world.
Analysists have predicted to see Kering's revenue to grow by +18% YoY, and a net profit growing by +42% in 2021 if tourism would be back to normality.
The main risk that I can foresee and that will influence the recovery of Kering is the global economic lift that should be provided only if the roll out of vaccines is globally deployed. A global roll out would allow tourism to start again and bolster sales of Gucci and the others brands. It seems that Kering is more dependant on the tourism than its competitors, and the lack of tourism could be problem for Kering on the long term.
Today, Kering is trading at a PE ratio of around 37.5 which I find high as its industry's peers are being traded at a PE ratio of 28.5 on average. Also the dividend yield is at 1.23% which I find correct compared to its peers such as Hermes which has a dividend yield at 0.43%.
In the current situation, Kering seems not to be a good candidate for long term investment, but within the next 6 months, a global economic lift is likely to occur and Kering will benefit from it. The reason why I keep Kering in my portfolio at the moment is because I want to be invested when the recovery will happen, and that will not happen overnight, but over months/quarters. Still, Kering will have to show strong results through 2021 for me to keep the company in the portfolio towards 2022.
Thanks for reading.