French consumer discretionary company Kering (XPAR:KER, Financial) (France) is one of the world’s largest luxury groups. Its brands include Gucci, Alexander McQueen, Balenciaga, Bottega Veneta and Saint Laurent, among others. We like that Kering is a personal luxury goods company in a growth market and believe that the industry can achieve mid-single-digit compounded revenue growth in the wake of the Covid-19 pandemic. In our view, prominent luxury brands (such as Gucci) benefit from significant scale advantages that only increase as the companies grow. Although Gucci’s momentum has stalled, it remains a growth brand with revenue improving over 10% from the first quarter of 2021 to the first quarter of 2022, while key metrics, such as store productivity and brand resale value, have remained strong. In addition, we appreciate Kering’s excellent track record of diversifying its exposure to Gucci and leveraging its scale for the benefit of its smaller brands. Overall, we find that the company trades at a compelling valuation given its unusually positive risk/reward proposition and believe that it is a structurally growing, high-quality luxury asset with an impressive management track record.
From David Herro (Trades, Portfolio)'s Oakmark International Fund second-quarter 2022 commentary.
