Kering Reorganizes Luxury Unit Amid Confidence for Gucci, Puma

Kering SA will reorganize its luxury division and said it’s “confident” of an improved operating performance in 2014 even as growth slows at the Gucci label and it tries to turn around the Puma sportswear brand.

Alexis Babeau, managing director of the luxury unit since 2011, will leave as Kering increases its focus on individual brands, which are growing faster than Gucci, the Paris-based company said late yesterday. His role will be split in two, with Marco Bizzarri overseeing couture and leather-goods, excluding Gucci, and former LVMH Moet Hennessy Louis Vuitton SA executive Albert Bensoussan heading watches and jewelry.

Gucci, Kering’s biggest brand, is introducing more expensive products and upgrading stores as it seeks to win back customers who are switching to brands they perceive to be more exclusive. The label reported improved sales in its own stores, though on a comparable basis the increase trailed analyst predictions. Puma beat estimates.

“We look with favor at the organizational change,” Mario Ortelli, an analyst at Sanford C. Bernstein in London, said via e-mail.

Kering shares rose 4.2 percent to 159.80 euros at 12:14 p.m. in Paris. The stock has declined about 9 percent in 12 months, giving the maker of Balenciaga shoes and Volcom shorts a market value of 20 billion euros ($27.7 billion).

The leadership changes come as Kering reported that first-quarter revenue rose 1.2 percent to 2.4 billion euros, just ahead of the average analyst prediction for sales of 2.37 billion euros. Luxury sales advanced 6.3 percent, excluding acquisitions and currency fluctuations, topping the 6.2 percent median estimate.

Gucci Japan

Quarterly sales in Gucci’s own stores gained 6 percent, with “excellent” growth in Japan, Kering said. The brand, which will continue to be run by Patrizio di Marco, boosted revenue 0.3 percent on a comparable basis, trailing analysts’ estimates of 0.5 percent.

Kering managers indicated on a conference call that trading for Gucci in April “remained strong, suggesting both brand initiatives and macro strength were helping,” Christopher Walker, an analyst at Nomura, said today in a note. Walker maintained a buy recommendation on the stock and raised his price prediction to 173 euros from 163 euros.

Kering is “confident” it will improve its operating performance in 2014, Chief Executive Officer Francois-Henri Pinault said in a statement.

‘Unknown’ Puma

Puma’s performance was better than expected in the quarter, though it “remains the unknown quantity,” Nomura’s Walker said. “A brand relaunch in the second half, new innovative products, a subtle shift towards sport and a new website bode well” for the second half of the year and 2015, he said.

Comparable sales at Puma fell 0.4 percent, less than analysts estimated. The company is encouraged by the reception of Puma’s new products and is confident in its ability to improve the maker of evoPower soccer boots, Kering Chief Financial Officer Jean-Marc Duplaix said on a conference call.

Direct sales of Bottega Veneta handbags, Saint Laurent dresses and other luxury goods surged 13 percent in the quarter, led by demand in mature markets.

Bizzarri will continue to lead Bottega Veneta until a replacement is found. Gucci CEO di Marco will report directly to Pinault, who will remain chairman of the Saint Laurent brand, which is “at a pivotal moment,” Kering said.

Comparable quarterly revenue rose fastest at Saint Laurent, increasing 27 percent, exceeding analysts’ estimates for 18 percent growth. Ready-to-wear and leather-goods growth at the brand was “outstanding,” Kering said.

Louis Vuitton

LVMH, the French owner of Gucci competitor Louis Vuitton, this month reported a 9 percent gain in first-quarter fashion and leather-goods revenue, its fastest growth in two years. Burberry Group Plc, the U.K.’s largest luxury-goods maker, also reported rising sales growth.

Kering’s organizational changes won’t affect strategy, which is focused on organic growth, group Managing Director Jean-Francois Palus said on a conference call. Kering won’t acquire more sporting and lifestyle brands until it has turned around Puma, Pinault said in an April 10 interview.

Gucci’s “somewhat subdued” growth leaves investors “with unresolved doubts on the future trajectory of the brand,” Luca Solca, an analyst at Exane BNP Paribas in London, said via e-mail. Investors will have to wait for the second half of 2014 “to see more sanguine growth.”

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