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Kering announces 2019 full-year report

Kering

François-Henri Pinault, Chairman and Chief Executive Officer, commented, “Kering delivered another year of sustained profitable growth in 2019, as total revenues significantly exceeded the 15-billion-euro mark and our recurring operating margin topped 30% for the first time ever.”

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“We are pursuing the implementation of our strategy — we are focused on developing our Houses, executing flawlessly, and creating value. In the challenging period China is facing right now, we want to express once again our support to all our colleagues and our solidarity with the Chinese people,” continued François.

“These particularly uncertain conditions don’t call into question Kering’s fundamentals in the Luxury industry. Thanks to the strength of our model, the talent and dedication of our 38,000 people sharing a culture of creativity and responsibility, and to our disciplined financial stewardship, we are confident in our growth potential in the medium and long term,” added François.

Consolidated revenue amounted to €15,883.5 million in 2019, up 16.2% as reported and 13.3% on a comparable basis. This strong performance was fueled by substantial growth across all regions.

Gross margin was €11,775 million, up 15.5% on 2018.

Recurring operating income totaled €4,778.3 million, up a robust 19.6% on 2018 (as restated under IFRS 16). Consolidated recurring operating margin amounted to 30.1% in 2019, a 90-basis-point improvement compared to 2018 (as restated under IFRS 16).

EBITDA rose 18.3% to €6,023.6 million (as restated under IFRS 16), while EBITDA margin increased by 60 basis points compared with 2018, to 37.9%.

2019 net income, Group share totaled €2,308.6 million. Compared with 2018, the change was due to

(i) the non-recurring tax expense relating to the tax settlement concluded in Italy on May 9, 2019 and

(ii) the €1,181 million net gain recognized in 2018 following the distribution in kind of PUMA shares.
2019 net earnings per share, Group share amounted to €18.40.

Recurring net income, Group share totaled €3,211.5 million, up 15.1% on 2018 (as restated under IFRS 16).

In 2019, Kering’s Luxury Houses once again delivered double-digit growth in both revenue and recurring operating income.

Over the year, total revenue from the Luxury Houses topped the €15-billion mark, coming in at €15,382.6 million, up 16.1% as reported and 13.2% on a comparable basis, on top of exceptionally high bases of comparison, particularly at Gucci. Sales in directly operated stores and online advanced 14.0% on a comparable basis, propelled by very strong performances from Gucci, Yves Saint Laurent, Balenciaga and Alexander McQueen. Online sales surged 22.6% year on year. Wholesale revenue from the Group’s Houses rose 10.4% on a comparable basis.

Kering’s Luxury Houses put in an excellent showing in the Asia-Pacific region (up 20.4%) despite political tensions and disruptions in Hong Kong in the second half of 2019, which impacted the Group’s business. Western Europe posted double-digit growth each quarter, with an overall progression of 13.7% over the year. North America and Japan were up 6.7% and 5.9%, respectively.

Total revenue posted by the Luxury Houses in the fourth quarter of 2019 rose 11.6% on a comparable basis. The directly operated store network continued on a strong uptrend, with comparable sales up 12.3% over the quarter, up double digits in all regions except Japan, which felt the impact of the increase in sales tax.

Recurring operating income of the Luxury Houses totaled €5,042.0 million in 2019, up 19.0% over 2018 (as restated under IFRS 16). Operating margin stood at 32.8%, up 0.8 percentage points on 2018 (as restated under IFRS 16).

Gucci: a year of profitable growth, in line with ambitions
Gucci generated an additional €1.3 billion in sales compared to 2018, with 2019 revenue at €9,628.4 million, up 16.2% as reported and 13.3% on a comparable basis. This represents a remarkable performance as Gucci more than doubled its sales between 2016 and 2019. The House’s excellent performance in 2019 is attributable to balanced growth across distribution channels. Growth in directly operated stores and online advanced 13.2% on a comparable basis. The Asia-Pacific region continued its upward trend, with comparable sales surging 22.4%, and Western Europe also enjoyed strong sales momentum, rising 12.9%. Wholesale climbed 13.4%, on a comparable basis.

The very sustained growth in revenue in the fourth quarter of 2019 (up 10.5%) was fueled by the brand’s growth momentum across regions and product categories. North America posted comparable revenue growth of 6.2% on a comparable basis in the last three months of 2019 in directly operated stores.

Gucci’s recurring operating income amounted to €3,946.9 million in full year 2019, a 19.8% increase over 2018 (as restated under IFRS 16), while the brand continued investing throughout the year to support its long-term development. Recurring operating margin widened by 120 basis points to 41.0%.

Yves Saint Laurent: excellent performance and record sales topping the €2-billion mark

With revenue in 2019 advancing to €2,049.1 million (up 17.5% as reported and 14.4% on a comparable basis), Yves Saint Laurent once again fully confirms its growth trajectory. Revenue from directly operated stores and online rose 15.7%, on a comparable basis. All regions reported very strong growth, notably North America (up 23.1%), Western Europe (up 16.8%) and Asia-Pacific (up 13.2%). Wholesale increased 10.6% on a comparable basis.

The House confirmed its excellent momentum in the fourth quarter of 2019 with revenue up 14.0% on a comparable basis thanks to strong performances in Western Europe and North America.

Yves Saint Laurent achieved 2019 recurring operating income of €562.2 million, up 20.0% over 2018 (as restated under IFRS 16); recurring operating margin was 27.4%.

Bottega Veneta: new creative direction bearing fruit

Bottega Veneta generated revenue of €1,167.6 million in 2019, up 2.2% on a comparable basis and 5.3% as reported. After a mixed performance in the first half of the year, revenue swung up in the second half (up 8.2% on a comparable basis), thanks to the excellent reception given to Daniel Lee’s new collections. Sales from directly operated stores in mature markets enjoyed particularly good momentum, with Western Europe and North America up 7.4% and 5.7%, respectively, on a comparable basis. Comparable sales generated through the wholesale network increased 6.8%.

Bottega Veneta sales advanced 9.4% in the fourth quarter of 2019, fueled by strong momentum in both retail and wholesale channels. The House’s recurring operating income for 2019 contracted to €215.2 million, and recurring operating margin narrowed to 18.4%, as the House carried out a targeted and controlled increase in operating expenses in support of its transformation and relaunch process.

Other Houses: sustained growth momentum

Revenue generated by Kering’s Other Houses totaled €2,537.5 million in 2019, up 20.3% as reported and 17.8% on a comparable basis. This excellent performance was led by Balenciaga and Alexander McQueen, which both recorded sustained sales growth throughout the year. Crossing important revenue milestones, both Houses confirmed their status as growth drivers. The Jewelry Houses also posted robust revenue increases in 2019.

Sales in the directly operated store network rose a strong 28.7% on a comparable basis, well balanced between mature and emerging markets. Wholesale rose 7.4% on a comparable basis.

In the fourth quarter of 2019, revenue of the Group’s Other Houses rose 17.2% as reported and 14.9% on a comparable basis, fueled by solid momentum at Balenciaga and Alexander McQueen.

2019 recurring operating income topped the €300 million mark, up 42.1% compared with 2018 (as restated under IFRS 16), to €317.7 million. Recurring operating margin widened by 190 basis points to 12.5% compared to 2018 (as restated under IFRS 16).

Corporate and other: very solid performance from Kering Eyewear
The “Corporate and other” segment reported 2019 revenue of €500.9 million, reflecting strong momentum at Kering Eyewear, up 18.2% on a comparable basis, which contributed €474 million to consolidated revenue after eliminating intra-group sales and royalties paid to the Group’s Houses (€596 million including these items). In 2019, Kering Eyewear’s performance was once again fueled by its Gucci, Cartier and Saint Laurent licenses, as well as by the recently acquired Montblanc and Balenciaga licenses.

Overall, net expenses from the “Corporate and other” segment totaled €264 million in 2019, up €21 million compared to 2018 (as restated under IFRS 16).

Financial performance

Other non-recurring operating income and expenses represented a net expense of €168.5 million in 2019.

Net finance costs were €309.5 million. This includes the cost of net debt, or €52.3 million, representing a 29.7% decrease from 2018 (as restated under IFRS 16). This sharp improvement primarily reflects the impact of the year-on-year decrease in the average amount of outstanding bonds.

Taking into account the impact of the tax settlement in Italy announced in May 2019, the Group’s effective tax rate was 49.6% for 2019. Excluding this impact, Kering’s effective tax rate on recurring income was 28.1%.

Cash flows and financial position The Group’s free cash flow from operations totaled €1,520.7 million in 2019 (under IFRS 16), impacted by the one-off cash-out related to the Italian tax settlement.

Outlook
Positioned in structurally high-growth markets, Kering enjoys very solid fundamentals and a balanced portfolio of complementary, high-potential brands with clearly focused priorities.

The Group is continuing to implement its strategy focused on achieving comparable revenue growth while ensuring the targeted and selective expansion of the store network in order to sustainably grow its Houses and consolidate their profitability profiles.

The Group is also pro-actively investing to develop cross-business growth platforms in the areas of e-commerce, omni-channel distribution, logistics and IT infrastructure, expertise, and innovative digital technologies.

The Group’s operating environment remains unsettled with regard to macroeconomic and geopolitical uncertainties, national trade policies, and fluctuations in exchange rates. These uncertainties may be temporarily heightened during major events or crises, such as the recent coronavirus epidemic, given the impact on consumption trends and tourism flows, and their ability to affect economic growth.

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Against this backdrop, in 2020 the Group plans to pursue the strategic measures that it has successfully implemented in recent years, namely rigorously managing and allocating its resources in order to support its operating performance, maintaining a high level of cash flow generation and optimizing its return on capital employed.

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