French consumer discretionary company Kering (XPAR:KER, Financial) is one of the world’s largest luxury groups. Its brands include Gucci, Saint Laurent, Bottega Veneta, Balenciaga and Alexander McQueen, among others. The personal luxury goods market has attractive structural growth prospects due to globalization, increasing wealth and social media. Moreover, large luxury houses, such as Kering, benefit from significant scale advantages that have resulted in both market share gains and superior levels of profitability compared to their smaller peers. While Gucci’s rate of growth has slowed more recently on the back of Covid-19-related lockdowns as well as other short-term factors, we believe the brand remains very well positioned for attractive levels of growth and returns over the long term. 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 Global Fund second-quarter 2022 commentary.
