EPA:PP), a French consumer discretionary company, is the world’s third-largest luxury group (behind LVMH & Richemont) and owns a 99% stake in exclusive Italian company Gucci Group. Other elite brands include Alexander McQueen, Bottega Veneta, Stella McCartney and Yves Saint Laurent, among others. PPR’s management has been divesting businesses that add little value and is working to strengthen market presence for its core and, in our view, its higher quality Luxury and Sport & Lifestyle divisions. One of the company’s premier brands, Gucci Group, appears to us to be considerably underappreciated. Sales channels for Gucci products have been expanded, as Gucci goods are now available at several mass retail operations as well as through direct distribution. Demand for Gucci merchandise has been surging in China and other emerging markets, which has significantly improved PPR’s competitive position in these high growth regions. PPR’s other luxury brands are also particularly well-positioned with a strong presence in the Leather and Shoes trade, which is the fastest growing (and one of the highest margin) segments of the luxury sector. Additionally, the company’s Sport & Lifestyle group, which already houses the well-known PUMA brand, recently acquired the Cobra Golf and Volcom names. We believe these additions will provide ongoing added value. Lastly, management has a significant vested interest in growing shareholder value, as insiders own approximately 40% of the company’s shares.
From Oakmark Global Select Fund Letter to Shareholders Third Quarter