Describing it as an “ambition” rather than a goal, the management of PPR told financial analysts yesterday that the group would like to reach a level of €24 billion in revenues by the year 2020, with 40 percent of that coming from its expanding sport and lifestyle division, whose brand portfolio now includes Puma, Cobra, Tretorn, Volcom and Electric.
The rest would mainly come from PPR's luxury brands, led by Gucci and comprising other assets such as Bottega Veneta, Yves Saint Laurent and newly acquired Brioni. Their total sales are expected to treble on an organic basis.
The €24 billion figure would compare with the total revenues of €12.2 billion that the French group reached in 2011, up by 11.1 percent from the previous year. Boosted by its $607.5 million acquisition of Volcom, which was consolidated last July 1, the sport & lifestyle division saw its sales grow by 16.6 percent to €3,156 million, or 26 percent of the group's total turnover.
Puma, whose results were announced Wednesday and are outlined further below, unveiled a new strategy at the end of 2010 to reach a turnover of €4 billion by the year 2015. Part of that should come from the development of its Tretorn brand beyond rubber boots and Scandinavia, but PPR will have to make new acquisitions in order to achieve sport & lifestyle revenues of €9.6 billion implied in its ambitious 2020 target.
Without commenting on the rumors about PPR's interest in Helly Hansen, François-Henri Pinault, chairman and chief executive of the French group, said he was looking mainly at medium-sized brands in the outdoor market that would offer potential for growth thanks to synergies with the rest of group and its sophisticated processes. As an example of the “PPR effect,” he pointed to the ongoing development of a footwear range for Volcom through Puma's know-how and sourcing capabilities, which should be ready by the spring of 2013, according to company officials.
Pinault also said that PPR had no intention of taking over the 20.1 percent stake it still doesn't own in Puma, for the time being. He was pleased with the development and the integration of Volcom, which contributed revenues of €146.7 million in the last six months of last year, with comparable sales rising by 8.2 percent for the period and by 9.6 percent in the fourth quarter.
Volcom's relatively small shoe and Electric segments had increases of 24.9 percent and 18.0 percent in the second half, respectively. Volcom's total sales rose by 7.8 percent in Western Europe, representing 24.7 percent of total revenues, but the growth accelerated sharply in the last quarter. North America was up by 7.8 percent, but emerging markets rose by 16.2 percent and now account for 11.1 percent of the brand's revenues.
The sport & lifestyle division delivered an 11.0 percent operating (Ebit) margin, 1.5 percent below the ratio of 2010, but most of the decline was related to the onetime impact of Volcom's acquisition on the valuation of its inventories.
The luxury division of PPR performed much better last year than the sport & lifestyle division, which is still in an investment mode. Its total revenues grew by 22.6 percent to €4,917 million, with double-digit growth across all its brands, and the operating margin improved to 25.7 percent, 2.2 percentage points better than in 2010.
The group's net income for the year grew by only 2.3 percent to €986 million, but excluding non-recurring items, it increased by 26.4 percent to €1,055 million.
The overall results were dragged down by lower sales and profitability of Fnac, the book, music and electronics retail chain of PPR, whose Italian subsidiary is due to be spun off. The group is still in the process of getting out of retail, and is negotiating the sale of Redcats.
To support its ambitious development strategies, PPR announced an expansion of its executive board, bringing in Franz Koch, the new chief executive of Puma, as well as Patrizio di Marco and Marco Bizzarri, who head up Gucci and Bottega Veneta. Jean-Marc Duplaix, the recently appointed group chief financial officer, is also joining the board, which now counts 12 members. Furthermore, Belén Essioux Trujillo, a 45-year-old former executive of Hermès, has been appointed senior vice president for human resources (more in Shoe Intelligence).
