Financial

Burberry Posts Strong Growth in H1 as Jonathan Akeroyd Sets Out Strategy

Burberry Posts Strong Growth in H1 as Jonathan Akeroyd Sets Out Strategy

LONDON — Burberry reported a robust first half, with revenue and profit both rising in the double digits at reported exchange driven by leather goods sales and the weaker pound.
The new chief executive officer Jonathan Akeroyd also set out a series of punchy targets. His ambition is for revenue to grow to 4 billion pounds in the medium term, and 5 billion pounds in the long term, at constant exchange rates, and with “good” margin progression.

In the first half ended Oct. 1, revenue rose 11 percent to 1.35 billion pounds at reported exchange, boosted by the weaker British currency. At constant exchange, revenue rose 5 percent year-on-year.

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Adjusted operating profit was up 21 percent to 238 million pounds at reported exchange, and 6 percent at constant rates. Profit for the six-month period rose 33 percent to 193 million pounds at reported exchange.

Shares were up 1.8 percent to 20.38 pounds in late-morning trading on the London Stock Exchange.

Burberry’s newly refurbished Sloane Street Store in London.

Photography by Tom D Morgan – ww

Sales of leather goods were up 11 percent in the first half, with the Lola bag now a bestseller. Sales of outerwear rose 3 percent in the six-month period.

The past six months have been busy for Burberry. Chief creative officer Riccardo Tisci showed his final collection for the brand at the end of September, and Burberry immediately named designer Daniel Lee to the top creative post. His first collection, for fall 2023, will be unveiled in London in February.

The company said it was maintaining its near-term guidance for the full fiscal year, and is mindful of the macro-economic challenges that lay ahead, including COVID-19-related disruption in mainland China, and “recessionary risks” in Europe and the Americas.

Later on Thursday, Akeroyd is due to lay out his new strategy to the markets during a live presentation in London. That new vision will include “a refocus on Britishness,” doubling the sales of leather goods, shoes and women’s rtw, and growing outerwear by 50 percent in the medium-term.

Another of Akeroyd’s ambitions is to grow accessories to more than 50 percent of group sales in the medium term. He also wants to “accelerate momentum” in core markets, and deliver on the company’s “bold” sustainability commitments.

Luxury Accessories Club Vivrelle Secures $35 Million Series B Funding

Luxury Accessories Club Vivrelle Secures $35 Million Series B Funding

Since raising its Series A funding in April 2021, Vivrelle’s membership club has seen its revenue increase by 600 percent and has caught the eye of more than one notable investor.
The membership, which offers access to a variety of designer handbags and accessories to members with tiers starting at “premier” for $39 a month, “classique” at $99 a month, “couture” at $199 a month and “couture+” at $279 a month, also includes access to Vivrelle’s luxury “Borrowing” showroom and social club in Midtown, which opened in June 2022.

With the goal of accelerating growth across all aspects of its business, the company held a Series B financing round led by 3L Capital, with participation from Origin Ventures. The round successfully raised $35 Million with participation from actress Lily Collins, actress and cofounder of Fresh Vine Wine, Nina Dobrev as well as entrepreneur Morgan Steward McGraw.

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“This recent round of fundraising marks a milestone for Vivrelle we only dreamt about when launching in 2018,” says Blake Geffen, cofounder and chief executive officer of Vivrelle. “We are ecstatic to have support from Lily Collins, Nina Dobrev and Morgan Stewart McGraw, alongside the capital partners who share in our vision of transforming how consumers utilize their closets and experience luxury. We look forward to expanding Vivrelle on many fronts, including our inventory offerings, opening additional showroom spaces, and growing our hard-working team.” 

Of her investment in Vivrelle, Collins said she is “thrilled to support and invest in this female-founded company. I’ve always been a supporter of sustainable fashion and I love that Vivrelle offers accessible designer brands that feel tailored to the consumer’s individual style and needs.” 

Additionally, Dobrev said she has always “had a deep love and admiration for fashion and style. As a proponent of female-founded entrepreneurial ventures, I feel honored to support Vivrelle — a company that speaks to everything I love about fashion. I believe no one should be excluded from experiencing the luxury of designer accessories, and I’m proud to be a part of expanding Vivrelle’s ability to reach even more people.” 

Looking ahead, the company said it aims to continue revolutionizing the way consumers view their closets and “build on the changing landscape of the shared closet and luxury resale experience that drives forward its status as a vanguard in advancing accessibility and circularity.”

Kering Sales Rise 23% in Q3 as U.S. Tourists Splurge in Europe

Kering Sales Rise 23% in Q3 as U.S. Tourists Splurge in Europe

PARIS – French luxury group Kering said sales rose 23 percent in the third quarter, fueled by a stellar performance in Western Europe, where U.S. tourists have been splurging as a result of the weakness of the euro against the U.S. dollar. 
Its cash cow brand Gucci continued to underperform versus the group’s other brands, although organic sales picked up their growth pace in the three months ending Sept. 30. Revenues at the Italian label totaled 2.6 billion euros, up 9 percent on a like-for-like basis, following a 4 percent rise in the second quarter. 

That was slightly below a consensus of analyst estimates, which called for a 10 percent increase in comparable sales at the maker of Dionysus handbags and horsebit loafers. By comparison, organic sales at LVMH Moët Hennessy Louis Vuitton’s key fashion and leather goods division rose 22 percent year-over-year in the third quarter.

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Reporting first-half results after the market close on Thursday, Kering said group revenues in the third quarter totaled 5.14 billion euros, representing a rise of 14 percent in comparable terms. This was up versus the second quarter, and above the consensus forecast for a 12 percent sales rise.

The group, whose brands also include Saint Laurent, Bottega Veneta and Balenciaga, said revenue in its directly operated store network continued to grow at a rapid pace, up 19 percent on a comparable basis. 

Western Europe posted a 74 percent jump. Conversely, North America was up just 1 percent, further penalized by a high comparison base. Japan saw a 31 percent increase, while Asia-Pacific posted growth of 7 percent, despite ongoing restrictions in Mainland China designed to curb the spread of COVID-19.

“We delivered sharp top-line growth, both versus last year and from pre-pandemic levels. Our ongoing focus on the exclusivity of our brands and on the quality of their distribution are yielding very positive results and reinforce their positioning in their key markets,” François-Henri Pinault, chairman and chief executive officer of Kering, said in a statement. 

“In an increasingly complex environment, we maintain the required flexibility to support our profitability and sustain our investments in the long-term outlook of all our houses, Gucci first and foremost. We are as confident as ever in the potential and prospects of the group,” he added.

Kering’s share price has fallen by 35 percent since the start of the year against the backdrop of looming recession, surging inflation, supply chain disruptions, Chinese lockdowns and the war in Ukraine. But Luca Solca, analyst at Bernstein Research, believes its current valuation is fair due to the potential of the group’s smaller brands.

“The ‘small’ Kering brands are not so small any more, as they represent a larger portion of Kering’s profits,” he said in a report dated Sept. 21. Solca noted that the non-Gucci brands accounted for 28 percent of EBIT in the 2021 financial year, up from 20 percent in 2010, with absolute profits tripling in the same period. 

“The Gucci relaunch will take some time, in all likelihood. But in the meantime the ‘small’ Kering brands continue to shine. At this valuation level, and with the prospect of a boost from China reopening next year to outbound travel, it is difficult to be bearish on Kering. Even if it may not produce significant positive surprises short-term, the relative downside seems limited from here,” he said. 

Kering said recently it is targeting revenues of 15 billion euros at Gucci. It also outlined Saint Laurent’s potential to become a megabrand, with a medium-term revenue target of 5 billion euros, double the 2.5 billion euros in sales registered last year. 

The Kering results come on the heels of figures from Hermès International earlier in the day showing sales at constant exchange rates rose 24 percent in the July-to-September period, with double-digit revenue gains across all regions. Meanwhile, LVMH reported its sales grew 19 percent in the quarter on an organic basis, in line with the trends observed in the first half of the year.

Kering Net Profit Up 34 Percent in H1 Despite China Lockdowns

Kering Net Profit Up 34 Percent in H1 Despite China Lockdowns

PARIS — French luxury group Kering said net profit rose 34 percent in the first half versus the same period last year, as strong sales with local customers in the rest of the world more than offset the impact of lockdowns in China in the second quarter. However, its cash cow brand Gucci continued to underperform versus the group’s other brands, with organic sales slowing in the three months to June 30, likely penalized by the label’s relatively high exposure to China. Revenues totaled 2.58 billion euros, up 4 percent on a like-for-like basis, following a 13.4 percent rise in the first quarter. 
That was slightly above a consensus of analyst estimates, which called for a 3.5 percent increase in comparable sales at the maker of Dionysus handbags and horsebit loafers.

By comparison, organic sales at LVMH Moët Hennessy Louis Vuitton’s key fashion and leather goods division rose 19 percent year-over-year in the second quarter, reflecting the resilience of its star brands Louis Vuitton and Dior, in addition to smaller brands like Fendi, Celine and Loewe.

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Reporting first-half results after the market close on Wednesday, Kering said group revenues in the three months to June 30 rose 20 percent year-on-year to 4.97 billion euros, representing a rise of 12 percent in comparable terms. 
This compared with a 21.4 percent organic sales increase in the first quarter, and was above the consensus forecast for a 9 percent sales rise.
The group, whose brands also include Saint Laurent, Bottega Veneta and Balenciaga, posted net income of 1.99 billion euros in the first half, a new record. Recurring operating profit was up 26 percent to 2.82 billion euros, yielding an operating margin of 28.4 percent, up from 27.8 percent in the same period last year.
“The group delivered sharply higher sales in the first half of 2022, sustaining last year’s top-line momentum — solid performances in retail around the world more than offset the impact of COVID-19-related measures in China in the second quarter,” François-Henri Pinault, chairman and chief executive officer of Kering, said in a statement.
“In a period of heightened macro uncertainty, Kering is in great shape to surmount short-term challenges, take advantage of new opportunities, and support the ambitious strategies and tremendous prospects of all our brands,” he added.
Kering’s share price has fallen by more than 25 percent since the start of the year against the backdrop of looming recession, surging inflation, supply chain disruptions, Chinese lockdowns and the war in Ukraine. But Piral Dadhania, analyst at RBC Capital Markets, believes the stock is ripe for picking.
“We think Kering is an attractive stock, given its valuation profile and the potential for Gucci improvement,” he said in a report dated July 5. “We also appreciate the portfolio business model, and the strength of some of the brands including YSL and Balenciaga with longer-term potential for Bottega Veneta and the expansion of Kering Eyewear following two recent acquisitions.”
Kering said recently it is targeting revenues of 15 billion euros at Gucci. Detailing its action plan at its Capital Markets Day event in Paris last month, the group said Gucci’s medium-term growth hinged on fashion and timeless products, and there was strong potential in the men’s and travel categories.

Gucci plans to increase the proportion of leather goods in its sales mix, and expand its Gen Z clientele with aspirational categories, while simultaneously reinforcing the high-end offer to seduce mature customers.
Kering also outlined Saint Laurent’s potential to become a megabrand, with a medium-term revenue target of 5 billion euros, double the 2.5 billion euros in sales registered last year. The group said it is targeting revenues of 2 billion euros for its eyewear division, launched in 2015.
The Kering results come on the heels of figures from Compagnie Financière Richemont showing sales at constant exchange rates rose 12 percent in the April-to-June period, with double-digit revenue gains across all product categories and regions, except for Asia Pacific.
Meanwhile, Burberry reported that the Chinese lockdowns dented its growth in the fiscal first quarter. At constant exchange rates, retail revenue was flat in the 13 weeks to July 2. Hermès International is the next big luxury player scheduled to report second-quarter results, on Friday.

U.S., Europe Help Drive Resilience of Luxury Goods Market

U.S., Europe Help Drive Resilience of Luxury Goods Market

MILAN — The luxury goods market continues to show resilience and is expected to reach revenues of between 360 billion and 380 billion euros by 2025.Despite the challenges and disruptions that took place in early 2022, from the war in Ukraine to inflation and the zero-tolerance COVID-19 restrictions in China, the midterm direction of the luxury market remains unchanged, according to Bain & Company, which on Tuesday presented the spring update of its Luxury Goods Worldwide Market Study 2022, “Rerouting the Future” in collaboration with Fondazione Altagamma.
The study presents two scenarios. An optimistic one that sees the growth path experienced in the first half of 2022 continuing throughout the year, closing 2022 with revenues of around 320 billion to 330 billion euros, growing 10 to 15 percent over 2021. Another scenario forecasts a slower recovery of mainland China and challenged spending in mature markets caused by inflationary pressure and a macroeconomic slowdown, with sales reaching 305 billion to 320 billion euros by the end of 2022, growing 5 to 10 percent over 2021.

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“Luxury goods brands started this year showing especially strong growth while also playing a leading role in the world’s ongoing sustainable and digital transformation,” said Claudia D’Arpizio, a Bain & Company partner and lead author of the study.
After its worst dip in history, the personal luxury goods market in 2021 experienced a V-shaped rebound, reaching 288 billion euros in value and it registered “a remarkable performance” in the first quarter of 2022, growing by 17 to 19 percent at current exchange rates or 13 to 15 percent at constant exchange rates over the same period in 2021. The appreciation of currencies compared with the euro and a very strong Chinese New Year as well as a successful vaccination campaign also boosted the first quarter.
The U.S. and Europe led the growth in the first quarter of the year, with a surprising recovery of the latter, admitted D’Arpizio, underscoring the “enormous potential of local consumers,” which were likely neglected by luxury brands before the pandemic, and are now enticed by more marketing initiatives, events, promotions and communication.
The market benefited from a “flamboyant” 2021 holiday shopping season across the regions, said D’Arpizio, with a 7 percent increase over the same period in 2019. Additionally, China continued to see double-digit growth last year and the U.S. maintained momentum, even after the end of the federal stimulus. China’s local consumer appetite remains strong and will potentially lead the country to recover between late 2022 and early 2023, she offered.
The impact of the Russia-Ukraine conflict has so far been restricted to local markets, showing limited consequences on global luxury customer sentiment and spending. The weight of Russian and Ukrainian spending is around 2 percent so it did not really impact business, and “compared to other crises, it’s as if consumers got used to turbulence,” said D’Arpizio, although “there’s been a lot of reaction to the war, but there’s also been a strong desire to return to life,” she said characterizing this trend as YOLO — the “you only live once” effect.

While she admitted there may be a recession in the second half of the year, Europe is accelerating its recovery, despite the war. The region is on the path to recover 2019 levels of sales one year before expectations, thanks to booming local demand driven by a fierce “back to normal” attitude and a rebound in intra-regional tourism.
The U.S. is “tapping into the power of diversity and inclusion” discovering an expanded American customer base and second-tier cities.
South Korea is undergoing a profound transformation, increasing its size and cultural relevance, defined as “the new Japan,” by the study, replacing in the last two years tourist spending with local demand.
In terms of categories, iconic bags are driving the accessories segment, and high jewelry is at its peak. A recovery of social life and a return to the office are pushing new formalwear.
The virtual world is offering new opportunities for luxury brands, including the metaverse, social media and gaming. By the end of 2030, the estimated weight of digital assets and the metaverse will account for between 5 and 10 percent of the luxury market. “There are 3 billion people involved in gaming and 300 million in luxury, and the potential connection for luxury brands is huge,” D’Arpizio said.
The growing relevance of direct-to-consumer channels and responding to the call of sustainability are also key, she said.
“In the last few months, luxury brands have been forced to reroute their futures,” said Federica Levato, a Bain & Company partner and coauthor of the report. “Winners will rapidly embrace the changes, ensuring they fully understand the implications of new geopolitical dynamics and cultural trends for all of their stakeholders: consumers, investors, employees and society at large. Those that come out ahead will take advantage of the opportunities presented by the virtual world, the sustainability transformation and preferences of younger generations.”
Matteo Lunelli, president of Altagamma, and Stefania Lazzaroni, general manager of the association, also presented an update of its Consensus 2022 study. The year 2021 saw a post-COVID-19 recovery, and 2022, despite the impact of the war and the lockdowns in China, began with a very positive first quarter, showing a 17 to 19 percent growth compared with the same period in 2021.

“The confidence of American and European consumers is solid,” Lazzaroni said. As per the update, Europe is seen growing 12 percent in the year compared with a Consensus forecast of 8 percent made in November. North America is expected to grow 10 percent compared with a 7 percent growth estimated in November. Asia was expected to grow 9 percent, but the update forecasts a 5 percent gain. The Middle East is expected to grow 10 percent compared with the 7 percent gain forecast in November. Hard luxury is the category seen growing the most, up 9 percent, driven by branded jewelry, while watches have slowed down, seen growing 6.5 percent.
Lunelli said the “long-term trends remain somewhat constant” and, while admitting the existence of “strong macroeconomic uncertainties,” he said that the Consensus estimates an average 9 percent growth in earnings before interest, taxes, depreciation and amortization for the companies in the segment, driven by a strong demand of the American consumer and an acceleration of Europe.

Kering Is Betting on Cryptocurrencies

Kering Is Betting on Cryptocurrencies

PARIS — Kering believes that cryptocurrencies are here to stay, and recently invested in a $1.5 billion fund aimed at supporting the growth of Web3, the next iteration of the internet.The French luxury group was one of the investors behind Katie Haun’s crypto fund Haun Ventures, launched in March, chief client and digital officer Gregory Boutté revealed on Friday in a presentation at the Kering Imagination Lab, the company’s hub for digital innovation in Paris.
And it recently made the leap into digital currencies by giving customers the possibility of paying in cryptocurrencies at Gucci stores, initially in key U.S. flagships. Balenciaga is set to follow suit “imminently” and will also accept cryptocurrency payments on its e-commerce site through specialized payment service BitPay. Boutté dismissed recent volatility as par for the course.

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“We’re convinced that cryptocurrencies are here to stay,” he said. “They’re hugely appreciated. A lot of wealth has been created around these currencies. Some of our customers who hold these currencies would like to be able to use them to buy our products, so in order to offer our clients the best possible experience, it makes sense to offer this option.”
He noted that Kering has a “test and learn” approach and would be closely watching developments at Gucci, which launched the option two weeks ago, as well as Balenciaga, before deciding whether to extend the payment system to other brands.
“That’s one of the beauties of having our own platform: it allows us to decide the developments we want to pursue,” he said. Kering last year completed the process of internalizing its e-commerce operations, which account for 15 percent of overall revenues, by integrating Balenciaga and Bottega Veneta.
Through its Kering Ventures fund, the group makes minority investments in start-ups or technologies aimed at serving the luxury customer of the future.
Haun is a former partner at Silicon Valley venture capital firm Andreessen Horowitz, and Kering executives, including chairman and chief executive officer François-Henri Pinault, also met with Marc Andreessen, one of the industry’s most respected entrepreneurs, on a recent trip to California to explore the potential of the metaverse for its business.
Separately, Kering partnered last year in a fund launched by investment firm Cathay Capital that invests in early-stage Chinese companies with high-growth potential in the consumer goods and retail sectors.
“On China and the topic of Web3 and cryptocurrencies, we feel that we have to learn, so we want to work with people that know these areas better than us, to be able to exchange with them on topics of common interest, and for them to help us formalize how these technologies or regions can adapt to that,” Boutté said.
The Kering Imagination Lab, which opened a year ago and is home to 200 employees, will host a hackathon on July 20 and 21 where employees will be encouraged to submit their ideas for how Web3 can drive the luxury business. A jury headed by Pinault will designate a winner, whose idea might be implemented by one of the group’s labels.
Boutté detailed how innovation and data were being used at every stage of Kering’s activities, from 3D product design, which is now used to develop between 30 and 40 percent of carryover styles, to machine-learning algorithms that help Gucci’s planners place inventory in stores with up to 20 percent more accuracy than before.

“Digital is not just about e-commerce. It can be relevant to every dimension in our value chain,” he said. “I think we’re very much ahead of the curve on this, and we have a very open approach to innovation.”
Kering is also bringing its “test and learn” approach to the metaverse, with Gucci selling a digital version of its Dionysus bag on Roblox, and Balenciaga teaming up with Epic Games’ Fortnite.
“There are 2.5 billion people playing video games every month, who are in this metaverse, who use these platforms and spend a lot of time in these virtual worlds. We believe these virtual worlds will be increasingly immersive and present in our lives,” Boutté said. “We think that Web3 and NFTs in particular represent a real disruption and we want to be at the heart of this disruption.”
SEE ALSO: 
Google Executive Joins Kering Board Amid Metaverse Push
Balenciaga and Fortnite Debut Physical, Digital Collections and World
Gucci Town Arrives on Roblox

Levi Strauss Ramps Up With Five-year Plan, $10B in Sights

Levi Strauss Ramps Up With Five-year Plan, $10B in Sights

The $10 billion mark is coming into focus at Levi Strauss & Co., where Chip Bergh, president and chief executive officer, has developed a five-year plan looking to power through any economic troubles in the landscape while ramping up growth in denim and beyond. “We wanted to emerge from the pandemic stronger and I can say definitively that we are a stronger company today than we were before the pandemic, then at the time of the IPO [in 2019],” Bergh told WWD ahead of the company’s investor day in New York on Wednesday. “You would never know it looking at our stock price.” 
Shares of Levi’s have ebbed and flowed as Wall Street fell in and out of love with consumer stocks and tried to gauge the extraordinary impacts of inflation at 40-year highs, supply chain turmoil, the pandemic, the war in Ukraine and more. The company’s market capitalization has fallen to just over $7 billion from $11 billion in the past year. 

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But Bergh pointed to Levi’s “structural economics,” the strength of its flagship brand and a portfolio of businesses that’s diversified and growing with the addition of Beyond Yoga last year. 
“We’ve got an amazing story to tell,” the CEO said. “We are highly differentiated versus every other company in our peer group. The Levi’s brand — there aren’t many brands that can touch it.” 
He also noted that Beyond Yoga is small but plays in a space that’s 2.5-times bigger than the $100 billion global denim market, that Levi’s has global scale and has navigated the supply chain troubles and has only about $100 million in net debt.  
“Our [earnings before interest and taxes] margins are north of 12 percent, that was our North Star at the time of the IPO,” Bergh said. 
Now the company has set its sights on a new North Star  on the horizon. 
By 2027, Levi’s is now targeting: 
• Revenues of $9 billion to $10 billion, boosting annual sales growth targets to a range of 6 percent to 8 percent, up from 4 percent to 6 percent, and building on revenues of $5.8 billion last year.
• Adjusted EBIT margin expansion to 15 percent.
• Tripling e-commerce sales, helping to move direct-to-consumer to 55 percent of total revenue, up from about 40 percent.
• And a nearly 100 percent increase in revenues of both women’s looks and tops.
Levi’s also set up a $750 million share repurchase program and affirmed its annual guidance this year, targeting revenue growth of 11 percent to 13 percent to $6.4 billion and $6.5 billion. 
To pull it off, Levi’s plans on continuing to “continue to invest in digital, data and AI capabilities as drivers of business performance, focused on increasing consumer loyalty, facilitating speed to market timelines and improving profitability.”
That has Levi’s focused on what it can control, bolstering operations and building on brand so the company can navigate whatever troubles come. 
Pointing to inflation — a key concern in the economy today — Bergh said Levi’s is ready.
“The reason having iconic brands and strong brands matter is, costs are going up,” the CEO said. “Everybody has to take pricing, we’ve been taking price…. Strong brands really matter at a point of time that’s inflationary. Consumers may wind up buying less, but they’re going to wind up buying product that has meaning.”

The company’s average unit retail prices are up 10 percent year-to-date and the company is still selling more units, showing continued demand in the market.
Levi’s is also operating in a sweet spot in the market, with both denim and more casual looks on the rise.
“We are driving growth in the denim category so we can grow through that category growth,” Bergh said. “I don’t think there’s a ceiling to how big the Levi’s brand could get. The only thing that gets in our way is ourselves and our management of how big Levi’s could be over time.”
The CEO, who has been at the helm for 11 years and successfully reoriented the brand to grow directly with the consumer, said half of the senior leaders that helped drive that advance are still on board and pushing the next leg of growth.
And there’s still plenty of room under the brand umbrella said Bergh, noting that the company still sells three bottoms for every top, opposed to the industry average, which is the reverse of that indicating there’s room for a lot more Levi’s shirts and jackets. 
Overall, the CEO said the global denim market is set to expand by 6 percent over the next several years. 
That has Levi’s growing with or a couple points ahead of the market — a trajectory that leaves a little wiggle room.
“Better to under promise and over deliver, “Bergh said. “Could we be accused of sandbagging? Maybe.”
Certainly Bergh & Co. couldn’t be blamed for wanting a little extra wiggle room in the world today.

MORE FROM WWD: 
Bullish Fashion CEOs vs. Wall Street Stock Declines
Tapestry Taps Brakes on Outlook With China Slowdown
Moody’s Sets Outlook to Negative for Retail, Apparel

Walmart Earnings Fall Short Thanks to Rising Gas and Food Prices

Walmart Earnings Fall Short Thanks to Rising Gas and Food Prices

Walmart is proving that even the nation’s largest retailer may not be immune to the economic pressures that are causing consumers to reevaluate their spending habits. 

Rising food prices meant more shoppers flocked to Walmart in the most recent quarter in search of grocery deals.
Courtesy Photo

The Bentonville, Ark.-based firm revealed quarterly earnings Tuesday before the market opened, improving on top-line revenues, but failing to meet Wall Street’s expectations after falling short on bottom-line profits. Company shares fell nearly 9 percent at the start of Tuesday’s trading session. 
“Bottom-line results were unexpected and reflected the unusual environment,” Doug McMillon, president and chief executive officer of Walmart, said in a statement. “U.S. inflation levels, particularly in food and fuel, created more pressure on the margin mix and operating costs than we expected. We’re adjusting and will balance the needs of our customers for value with the need to deliver profit growth for our future.”  

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For the most recent quarter, or the three-month period ending April 30, total revenues grew 2.4 percent to about $141 billion, up from more than $138 billion a year ago. Comp sales at Sam’s Club grew 10.2 percent, and 17.4 percent on a two-year stack. Membership income rose 10.5 percent. 
Walmart U.S. e-commerce sales increased 1 percent, or 38 percent on a two-year stack. Last August, McMillon said the company’s global e-commerce business was on track to reach $75 billion in revenues by the end of the year. The company still hasn’t said whether it has reached that goal yet.
Meanwhile, ​​net sales at Walmart International fell $3.5 billion during the most recent quarter, or 13 percent to $23.8 billion, negatively impacted by $5 billion, due to divestitures. The retailer logged $2.05 billion, down from $2.73 billion during last year’s first quarter, as a result. 
The results are a mixed bag. Walmart’s affordably priced food selection means consumers are increasingly flocking to the mass channel for their grocery needs. But McMillon added on Tuesday morning’s conference call with analysts that inflation is also lifting the average ticket price. Shoppers are responding by purchasing fewer discretionary items, resulting in smaller overall basket sizes. 
“As expected, consumers are increasingly drawn to the lower price points that Walmart can offer for groceries and Walmart is taking market share in food, but higher food sales is also putting pressure on gross margin,” Moody’s retail analyst Mickey Chadha wrote in a note. He added that the higher inventory levels “could lead to increased promotional cadence in the coming quarters if consumers continue to pull back, which could increase pressure on earnings. It is increasingly difficult to pass on higher prices to consumers while dealing with higher wages and employee costs.”
In terms of food costs, McMillon said there’s been double-digit inflation. “And I’m concerned that inflation may continue to increase. As it relates to Walmart U.S. general merchandise sales, we knew that we were up against stimulus dollars from last year, but the rate of inflation in food pulled more dollars away from [general merchandise] than we expected as customers needed to pay for the inflation in food,” he said.

Aside from rising consumer food and gasoline prices, executives on the call told analysts that additional headwinds came from higher-than-expected inventory levels (up 32 percent for the quarter, year-over-year), added fuel costs in the supply chain and increased labor expenses. 
“As the Omicron variant case count declined rapidly in the first half of the quarter, more of our associates [who] were out on COVID-19 leave came back to work faster than we expected,” McMillon said. “We hired more associates at the end of last year to cover for those on leave. So we ended up with weeks of overstaffing. That issue was resolved during the quarter, primarily through attrition.”
In addition, U.S. fuel cost the retailer more than $160 million more during the quarter than originally expected.

Doug McMillon, president and chief executive officer of Walmart
Courtesy Photo

Still, McMillon expressed optimism for the future. 
“Across our businesses, we had a strong top-line quarter,” he said. “There were some things that happened during the quarter that were different than we expected and we’re trying to be very transparent about those things. There seems to be more uncertainty now in a very fluid environment. And so, we’ll just deal with that.”
One way will be by slashing prices in high-margin areas, such as apparel, in an effort to manage excess inventory. While this might seem counterintuitive, McMillon said shoppers on a budget are more likely to notice. 
“Part of what’s at play here is [that] you’ve got food inflation moving up, but we’ve got general merchandise categories, like apparel and some of our hardlines categories, to play with,” he said. “And the beauty of it is [that] customers are even more price sensitive right now. They’re attention to fuel prices and high-food prices is high. And so when you bring [a price of] something down in sporting goods or hardware, one of these other categories, they notice even more than they would notice before and that makes the elasticity impact be different than it would be otherwise, which blends the mix up.” 
In addition, some tailwinds for the quarter included things like game consoles, as well as patio furniture, grills and gardening supplies, thanks to warming temperatures.

“In terms of the consumer themselves, we’ve seen strong growth with higher-income consumers, middle-income and lower-income, but we do see a definite strength with high-ticket items,” John Furner, president and CEO of Walmart U.S., said on the call. “With some consumers and others, we do see some switching, which would include switching specifically from brands to private brands. And where we see the switching from brands to private brands, we’ll continue to watch that for a group of customers, but we’ve got to all work harder to keep prices low for the American consumer.”
McMillon added: “It’s important to recognize that there’s more than one consumer. We serve the whole country. [With] the U.S. in particular, we’ve got a breadth of customers and they behave differently. [With] some customers, we are seeing some indications of change throughout the quarter, but that’s not true for all of them.”

Pieces from Walmart’s Love & Sports brand.
Courtesy Photo

Walmart has worked hard over the last few years to expand its assortment of merchandise, particularly in fashion. The big-box retailer now sells more than 1,000 third-party apparel, accessories, and beauty and wellness brands — such as Levi’s, Reebok, Free People, Jordache, Eloquii, Space NK and Kris Jenner’s home cleaning brand Safely — and continues to add to the scale and breadth of its portfolio of brands each quarter. Earlier this month, the firm expanded its distribution of period-panty brand Proof to approximately 4,000 Walmart stores.
In addition, Walmart has an extensive list of its own apparel brands, three of which are worth more than $2 billion, although the company declined to say which ones. The list includes sustainable innerwear and maternity brand Kindly, swimwear and activewear brand Love & Sports, and apparel brands Free Assembly and Scoop, of which luxury designer Brandon Maxwell serves as creative director.
“Maintaining price competitiveness is the key risk for Walmart in today’s inflationary environment,” Landon Luxembourg, senior analyst at research firm Third Bridge, wrote in a note. “As consumer wallets come under pressure, private brands will likely take the stage as consumers trade down from a pure decision of opting for lower-cost items. Walmart’s private brand portfolio, which was a focus area over the last four to five years, has now doubled its assortment. However, it has not grown consumer mind share and lack recognizability versus Target and Costco’s competing private assortment, which may be more sought after by consumers.”

Walmart anticipates current quarter revenues will increase more than 5 percent, excluding divestitures. U.S. comp sales are also expected to grow — between 4 percent and 5 percent — excluding fuel, while earnings per share are expected to be flat to up slightly, excluding divestitures.  
For the full year, the company expects net revenues will rise about 4 percent, excluding divestitures. Walmart U.S. comp sales are expected to increase roughly 3.5 percent, excluding fuel, while earnings per share for the year will decrease about 1 percent, excluding divestitures.
The company ended the quarter with $11.8 million in cash and cash equivalents and more than $32 million in long-term debt. 
Shares of Walmart, which closed up 0.11 percent Monday to $148.21, are up 6.7 percent, year-over-year.
“We don’t expect this miss to become a norm, seeing that Walmart has historically outperformed competition during tough economic times,” Arun Sundaram, senior equity analyst at CFRA Research, wrote in a note. His firm maintained its “buy” position on Walmart’s stock, but cut the 12-year price target by $3 to $162 a share. “The good news is most of these issues seem to be isolated to the quarter and margins should improve in the second quarter and the back half of the year as Walmart works through excess inventory and better matches pricing with costs.”

Kering Launches First Employee Share Ownership Program

Kering Launches First Employee Share Ownership Program

PARIS — Kering said Wednesday it is launching its first employee share ownership plan, for employees in eight territories including France, the U.S. and China.
Employees will be able to buy 200,000 shares at a discounted rate. The subscription period will be open from May 19 to June 9, with the price set on May 17. Delivery and settlement of the shares is slated for July 7.
“Kering’s outstanding success over the past few years is based on each of its employees, their ability to push their limits and their willingness to contribute to shaping a modern, authentic and responsible luxury,” François-Henri Pinault, chairman and chief executive officer of the French luxury group, said in a statement.

“The launch of this employee shares program is a sign of recognition for the efforts of our employees and for their commitment to our corporate culture. It reflects my confidence in their involvement and in the future of Kering,” he added.
Shares purchased through the scheme will have to be held for at least five years in France and three years in all other countries, barring early-release exceptions applicable in each jurisdiction.
Kering has previously launched group-wide parental, baby leave, and diversity and inclusion policies. In April, it announced the signature of a partnership charter with the French Ministry of Labor, Employment and Integration to reinforce its commitment to hire more young people from disadvantaged communities.
FOR MORE, SEE ALSO:
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Hermès Touts Craftsmanship Over Metaverse at Shareholders’ Meeting

Hermès Touts Craftsmanship Over Metaverse at Shareholders’ Meeting

PARIS — Digital commerce has become second nature for Hermès International, which boasts that 78 percent of customers at its online store are new to the brand.But how about the metaverse? Not so much.
“I don’t know,” Hermès executive chairman Axel Dumas shrugged when confronted with a question about its metaverse intentions at the company’s annual shareholders’ meeting here Wednesday. “For the time being, we’re interested to see how this world evolves and changes.”
Dumas noted that it “could conceivably” offer Hermès a “great means of communications” in the future — and in its quirky fashion.
“But this is not a priority of ours,” he stressed. “We’re mainly interested to learn and to monitor, rather than rush into the metaverse.”

Hosting its first in-person meeting since 2019, Hermès made no mistake that it is a company rooted in physical objects, human creativity and exceptional craftsmanship, screening countless videos of its artisans caressing, cutting and stitching its coveted leather goods in light, airy workshops set in the picturesque French countryside. “We still devote 15 hours to making each handbag,” Dumas declared proudly.

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The two-hour session opened with a pianist engaged in a duet with exotic birds singing and strutting on a giant screen, electronic gurgles and a flute player adding to the cacophony.
Hermès has every right to chirp, having logged a “record year” in 2021 that saw revenues vault 41.8 percent to 8.982 billion euros — this despite price increases amounting to less than 2 percent, Dumas pointed out.
The executive gave no specific guidance for 2022, while declaring: “We are full of confidence about the future.”
The French luxury house certainly galloped ahead in the first quarter of 2022, recording a 27.1 percent rise in revenues at constant exchange to 2.76 billion euros and touting double-digit growth across all business lines and territories.
Looking ahead, Hermès plans to continue to increase its production capacity, especially in leather goods, and expand its retail network. Major openings planned for this year include New York City, Shanghai, Strasbourg, Barcelona and Doha.
“Our stores are all unique places,” Dumas asserted, explaining that its boutique buyers are fully empowered to tailor product assortments to local tastes and needs.
The French firm ended 2021 with 303 boutiques in the world, having added or expanded locations in cities including Detroit, Tokyo, Macau and Shenzhen.
The gathering served as a recap of how mightily Hermès weathered the pandemic, with executives touting the exceptional flexibility and devotion of its artisans, HR managers and sales associates; its culture of “French excellence,” and the unity of the family shareholders. About 100 or so family members last year decided to block 54 percent of the share capital until at least 2041 under the nonlisted holding company known as H51.
Responding to shareholder questions about its large cash reserves, Dumas said not having any financial constraints or debt is “of paramount importance” to its resilience, allowing it to maintain jobs and wages, while continuing to invest in retail operations and factories.

Hermès operates 52 production sites in France, 19 of them for leather goods. Last month, the company said it would open two more leather goods workshops in France within the next five years, adding 500 more artisans to its payroll. Three other sites are already under construction in France, meaning it will boast 24 workshops for leather goods and saddlery by 2026.
Meanwhile, other Hermès sectors logged faster growth than handbags in 2021. By product sector for the full-year versus 2019, watches rose 76.6 percent and ready-to-wear and accessories 44.3 percent, outpacing leather goods and saddlery at 22.8 percent.
Hermès added about 1,000 jobs in 2021, bringing the worldwide employee count to 17,600, all of whom received a 3,000 euro bonus and 100 euro a month salary bump.
“We are pleased to share with employees, the benefits of our growth,” Dumas said.
SEE ALSO:
Hermès Touts ‘Genuine’ Pricing
Hermès Rides Luxury Wave, Driven by Europe and Americas
LVMH Q1 Revenues Jump Despite War in Ukraine, China Lockdowns

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