Autumn is a time to clear out closets. gucci owner kering did a tidy-out on tuesday, shedding some of its remaining stake in puma. the sports brand, once an underperformer, now goes head-to-head with leaders nike and adidas. loosening its ties to the luxury goods group has worked wonders, demonstrating the limits of empire building.
Puma shares have leapt higher since kering spun off the bulk of its stake to shareholders in 2018. the shares are almost back to record highs, encouraging kerings latest divestment. a cleaner kering balance sheet paves the way for the consolidator to pounce on a fresh target.
Kerings patchy record on acquisitions prompted some shareholders to make clear-outs of their own. puma came good in the end, but the top-of-the-market deal from 2007 was a stain on kerings record for years. kering now needs to find a deal that is more its style to help unwind some of its shares discount to rival luxury giant lvmh.
Balance sheet management implies a transaction as early as next year. the 6 per cent puma sale contributes another 650m to the companys cash balances. net debt may fall to a decade low of 851m next year, moving to net cash in 2022, according to ubs.
The remaining puma stake would raise just over 1bn if sold on the same terms. returning that excess cash to shareholders is one option. smaller luxury brands may be too tempting for kerings billionaire chief executive franois-henri pinault to resist.
While luxury giants have performed well since the crisis, smaller single-name brands have lagged. a number fit the profile that could tempt kerings animal spirits. prey should boast decent market share and trimmable margins.
Shares in italian groups tods and salvatore ferragamo are down by almost half and a quarter respectively over the past year. moncler, with which kering was exploring a deal last year, has risen only a tenth. german suit brand hugo boss remains stuck at a price last seen in 2010.
Puma proved a difficult a beast for kering to tame. a deal that pleases shareholders better will show those old scratch marks were received in a good cause.