Kering: Puma the head and Gucci the tail

• The sales in the Luxury sector increased but the exploitation result decreased.
• Gucci improved in the last quarter, but could not recover the lost ground.
• Puma´s action plan appear to be starting to bear fruit.
• The Net Benefit, excluding the nonrecurring results, fell a 4,39%.
• A strong dollar would benefit the Company future results, but can penalize more the margins.

The French company chaired by François-Henri Pinault, presented yesterday a bittersweets results. In this year of transition for the business, within segment “life style”, hasn´t been supported by, until now, which was his yet engine: Gucci.

As we will see later, the sales of the company luxury icon, have fallen -1,79% in the year, and the exploitation incomes in a -6,70%. The output of Frida Giannini, creative director, and Patrizio di Marco, CEO, in December, is a new attempt towards a renewal, after 10 years of work.

The question is: Will Tom return, as prodigal son, or will have Alessandro Michele the opportunity, Frida´s right hand, of trying to raise this reactor? In the end, this incursion within the speculation realm let the mess. The results can be summarize in the next points:

• With a  Net Incomes of € 10.037,5 millions, a 3,95% more than last year, and a good evolution in the  Sales costs (3,50%), The  Gross Margin stood in € 6.295,8 millions, a 4,23% better than in 2013. The Gross Margin, with a 62,72%, improved in  16 p.b. By activity:
  • Luxury, which represents the 67,33% of the total turnover, increased her incomes in a 5,98%, in a unevenly way. As we have already discussed, a bad behavior of Gucci, offset with a great year of Bottega Veneta (+11,29%), Yves Saint Laurent (+27,01%) and other brands of the luxury sector (+14,44%).
  • Sports and Life Style, 32,33% of the total incomes, practically didn´t grow about 2013(+ 0,06%). Here we include Puma. As we all know, after a difficult 2013 and a disastrous third quarter of year that led to the incorporation of Jean-François Palus y Björn Gulden, 2014 has been the resurge of.

•  The German sportswear brand, with a decrease of her incomes, only in a,-0,39%. The World Cup and the arsenal sponsorship have helped to this encouraging result. The bad data of the Recurring expenses and the Operating expenses (+11,28%), partially offset by a modest growth of the Staff Costs (+1,96%), have supposed that the  Exploitation benefit  has fallen in a -4,98%, to position in € 1.664,0 millions. The exploitation margin is stood in the 16,58%, with a fall of -156 p.b. By sectors:
  • Luxury: The exploitation incomes fell a -1,08%, due to Gucci´s bad behaviour (-6,70%) offset by a great result of Bottega Veneta (+8,05%) and, above all, by Yves Saint Laurent (+37,21%).
  • Sports and Life style: The exploitation result fell in a -31,39%, due, mainly, to  Puma´s  activation plan (-33,30%).
• With the reduction of the financial expenses in a  -6,22% and a improvement in the  non-recurring incomes in a -74,56%, the Profit before tax raised to  € 1.354,5 millions, which represents an increase of the 23,14%.The Margin before tax improved in 210 p.b., to position in a 13,49%.
• The Net Benefit because of the continued activity of the company amounted to € 1.028,1 millions, which represents an increase of the 18,90%. The Net Margin grew in 129 p.b., to position in the 10,24%.
• Due, mainly, to the sale of Redcats, the Company recorded a net loss of a € 479 millions in the discontinuous activities, much lower loss that the one that was produced the previous year (€-824,7 millions).  This is the reason why, the Gross profit attributable to the company, ascended to € 528,9  millions, versus the  € 49,6 millions of last year.
• Dividend: Is proposed to shareholders the approval of a cash dividend of € 4,00 per share for 2014.
• Company forecasts: 2015 will continue with Puma´s relaunching plan. The economic environment with a devaluation of the euro versus dollar could have a positive impact in the sales, but mixed effects in the group results.

As to Balance sheet and income statements analysis, is noteworthy:

• Indebtedness: The indebtedness, that measure if the business has obtained enough sinews to maintain the balance between the self-financing and the foreign finance, has improved reaching in the optimum levels. Even if, in 2014, the Quality Ratio of debt has worsened.
• As to short-term liquidity, the liquidity Ratio has worsened, about to 2013, staying at levels, by the moment, little dangerous to take measures to restructure the debt. This situation is corroborated by the Acid test.
• As to the Working capital needs, this indicate the need of introducing adequacy policies of receipts and payments by the Company.
• Last as to the Company profitability, therefore the side of the margin, and the rotations or the appeasement, has improved, assuming greater, clearly, the opportunity costs of the shareholders. Last, the active yield has improved in 93 p.b.

In brief, it concerns us the delay in Gucci´s reaction and the possible reduction in margins, anticipated by the Company. The results are located below our forecasts. For this reason, and for the indicated,  from a fundamental point of view, we don´t support buying short-term shares.

Technical Analysis of the Value

As we can see in the weekly graphic after the rupture of the triangle (orange color), the share Price has been rise, practically without volatility, with a very upright trend line. We begin to see, in the short run, exhaustion signs of this trend, that, in principle I think it is more a consolidation tan a trend change. The relative strength indicators, as well as the narrowing of Ichimoku´s cloud, make us think in short-term falls, to levels of  173.40-174.30. Even if, long-range, we have to follow closely the value, since the potential target is of 202.71.

If we analyze the daily graphic, corroborates us both the bearish expectations short term as long term. In brief, we would take advantage of assignments to levels 173.40 to ask to take positions in the value. The Objective, long- range remains at levels of  202.71.

“Boredom is what remains of thoughts when passions are removed from them”, Emile-Auguste Chartier.

Analysis: Miguel Angel Abad Chamon, Minister of Eurodeal Sociedad de Valores,AbadMaachamon
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