Kering Case Study

KERING & LVMH

Kering and LVMH. How well is Kering performing relative to LVMH? What are the reasons for the performance differential? What can Kering do to close the gap?

Kering Group is a high profile conglomerate that delivers apparel and accessory products to the end customers with the vision of making them look and feel better. The group collects reputable brands under its umbrella, including Gucci, Bottega Veneta, Saint Laurent, Alexander McQueen, Balenciaga, Brioni, Christopher Kane, McQ, Stella McCartney, Tomas Maier, Sergio Rossi, Boucheron, Dodo, Girard-Perregaux, JeanRichard, Pomellato, Qeelin and Ulysse Nardin in luxury market and Puma, Volcom, Cobra, and Electric in Sport & Lifestyle market. The group took this structure at the end of 2012 when it underwent a considerable restructuring divesting and selling some of the retail businesses and acquiring accessories brands to grow its luxury division.

Currently Kering’s objective is to compete with the market leader in Luxury (LVMH) aiming to reduce the sales revenue gap between the two businesses. At the end of 2014 the gap reflected in the income statement of the two businesses was valued at €20.6bn (Tab.1).

Sales Revenue (bn $)

LVMH

KERING

LVMH vs KERING

2013

29.016

9.656

19.360

2014

30.638

10.038

20.600

Tab. 1. Sales revenues for LVMH and Kering over time

This has also clearly been reflected into the share price movements of the two companies over the last 5 years.

To get into deeper analysis, we reviewed the financial performance of both companies, looking at the period after the restructuring of 2012. We focus on this period as earlier data will not be representative of the current state of the business due to the series of sales and acquisitions of businesses that took place at the time.

On a first glance, the two companies generate almost similar gross margins. So, we would expect the two companies to have similar profitability performance. However, a look at the net margin reveals Kering is much less profitable than LVMH, generating only 5.27% net margin compared to 18.43% of LVMH group (Tab.2).

2014

Kering