P&G’s slow turnround frustrates analysts

Analysts expressed frustration with the slow pace of Procter & Gamble’s turnround after a collapse in fourth-quarter profit and muted outlook sent shares in the world’s largest consumer products group down nearly 4 per cent.

P&G, which has been divesting tens of billions of dollars worth of brands, reported sales down 9 per cent to $17.8bn in the three months ended June, highlighting the challenges facing incoming chief executive David Taylor.

Net income for the maker of Tide laundry products and Pampers nappies shrank 80 per cent to $521m, or 22 cents a share, dragged down by restructuring costs, currency effects, and a $2bn charge to reflect the impact of Venezuela’s currency crisis.

The company said it had become impossible to convert the volatile Venezuelan bolívar or pay dividends in the country, forcing it to stop consolidating the results of its local operations under GAAP. It will instead report dividends from its Venezuelan subsidiaries as operating income once the cash has left the country.

P&G’s fourth quarter showed productivity improvements and a 22 per cent increase in earnings excluding restructuring costs and the impact of a stronger dollar. However, in a company conference call, analysts asked why there was still no real evidence of underlying earnings growth, whether there was a “Plan B”, and whether the company should be split up.

One highlighted the fact that fiscal 2015 organic sales growth, which strips out extraordinary items and forex effects, was 1 per cent higher, but for the 10 key business segments P&G is focusing on, that growth stood at only 2 per cent.

Chairman and chief executive AG Lafley and chief financial officer Jon Moeller batted off the frustrations, promising to deliver stronger growth in the coming year. They said that if parts of the strategy were not working then they would change them, but that the company still needed time for the turnround to take effect.

“Clearly we recognise the need to grow faster and think we’re making the right choices to do that,” Mr Lafley said. “The last thing I want to do is chase volume and share that has no value. We’ve been to that movie before. We’re picking our spots, and doing it with products that consumers prefer.”

The company’s outlook remains subdued for the current year, amid currency and macroeconomic headwinds in emerging markets and Europe. P&G’s shares dropped 3.9 per cent to $77.44 by close of trading in New York.

It expects revenue to fall by “low to-mid single digits” this year. An expected EPS increase of 53-63 per cent this year from $2.44 will come as it rebounds from the Venezuelan charge.

Even when extraordinary charges and currency movements are excluded, organic sales are expected to meet forecasts of “low-single digits”.

“We do well when we focus on following the shopper and consumer,” Mr Lafley said. “One of the big questions is how fast can we do this and my view is that we are much more interested in getting it right and making changes that sustain value creation.”

P&G, like many multinationals, is suffering in the emerging market slowdown. It faces particular pressure in Russia, where P&G has dominant market share, and where sales tumbled nearly 60 per cent in June.

Having sold nearly 100 brands, the company is promising to shift to growth mode in areas such as beauty and grooming, and nappies. As part of this transition, David Taylor will replace AG Lafley as chief executive in November.

For the full-year ended June 30, sales dropped 5 per cent to $76.3bn, while EPS dropped 21 per cent to $3.06.

Source : FT

Failed Retail Brands Get New Lives on Web

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An investor group led by New York businessman Steve Russo bought Delia’s intellectual property and customer lists for $2.5 million. 

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The going-out-of-business sales had already ended at Delia’s, a teen-clothing chain. But then, this message popped up on Delia’s dormant Instagram page: “The internets have spoken! We are coming BACK!” it said, below tiled images of a model mugging at the camera in Delia’s shirts.

Entrepreneurs and investment firms are snapping up the intellectual-property rights to retailers that have fallen on hard times, taking advantage of a built-in audience to launch lower-cost small businesses online without the overhead of maintaining dozens or hundreds of locations.

But capturing enough attention with online- and catalog-only strategies can be difficult, retail analysts say, and longtime customers of a particular brand will be quick to flee if they don’t see the kinds of products they grew to love.

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As liquidators cleared Delia’s stores earlier this year, for instance, an investor group led by New York businessman Steve Russo in February bought the brand’s intellectual property and customer lists for $2.5 million. Now, he and his partner owners are preparing to relaunch Delia’s as an online- and catalog-only store as soon as the end of July.

Other brands making a comeback as smaller businesses include the now-defunct children’s clothing purveyor Naartjie Kids, which in November sold its name in bankruptcy to a South African company that has promised to reopen its U.S. online store. And the lingerie chain Frederick’s of Hollywood, which recently closed its fewer than 100 remaining stores and filed for bankruptcy, is planning to sell its e-commerce business to a company that revives and licenses brands.

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“I think this can be a viable strategy, particularly if you’re correcting what might have been a fundamental flaw in the original business model,” said Cathy Leonhardt, a managing director at Peter J. Solomon Co. and co-head of its retail group.

“Barriers to entry and execution are fairly low” with e-commerce stores, added David Peress, executive vice president at intellectual-property advisory firm Hilco Streambank.

Bradley Snyder, executive managing director at asset-valuation, advisory and liquidation firm Tiger Capital Group, said every intellectual property sale has several considerations, including, “What’s the future of the brand? Is it interesting to people? Where should it logically be?”

Last year, private-equity firm Sycamore Partners bought the intellectual property rights to Coldwater Creek, the women’s retailer that filed for bankruptcy and closed its 365 stores. Sycamore is backing a catalog and website that it says feature the same “beloved basics” and new products the retailer used to carry.

Longtime Coldwater Creek shopper and Philadelphia-area resident Karen Staub said she was surprised to find a Coldwater Creek catalog in her mailbox in March.

“I was like, hmm, where’d this come from?” Ms. Staub, 63, said recently. “Then I got another one, and I realized they were back in business.”

Sycamore, which also owns women’s clothing chain Talbots and other retailers, declined to comment on Coldwater Creek’s relaunch.

Delia’s rose to popularity in the 1990s and had 92 retail stores when it went out of business last month. But Mr. Russo believes the brand is strong enough to survive and even thrive in a leaner format, because he believes the brand still appeals to young girls and moms looking for clean, age-appropriate fashions.

A key part of the chain’s possible appeal is its social-media following. The “coming BACK” post, for instance, got more than 15,000 Instagram “likes” and comments. To spread the word about its relaunch, the business is now using the hash tag #DeliasForever and such messages as “Online only = ALWAYS OPEN!”

Mr. Russo is taking advantage of the followers Delia’s built up on social media before its bankruptcy, and he kept on an assistant in her 20s from Delia’s social-media department to manage the Instagram account.

The founder of FAB Starpoint, a youth-accessory and backpack maker that licenses Hello Kitty, Nickelodeon and other brands, Mr. Russo believes Delia’s fell into bankruptcy in December because the chain’s previous management “didn’t focus on the back-end of the business” for years. “They just bled tremendous amounts of money.” A publicly traded company until its shutdown, Delia’s brought on retail-industry veteran Tracy Gardner as chief executive in May 2013. Ms. Gardner declined to comment.

In 2008, Mr. Russo started Artisan House, a handbag and accessory wholesaler that sells to department and specialty stores. He also owns the rights to operate Hello Kitty stores in the U.S.

All told, Mr. Russo said, his businesses bring in $250 million in revenue annually and employ around 200 people.

He said he expects the new Delia’s to bring in $40 million in sales by 2017 and eventually top $75 million.

Mr. Russo is working on ways to overhaul operations, including by improving the mobile shopping site and making sure that catalogs go only to the brand’s target audience. That’s a process he undertook in 2013, he says, when he and one of his partners on the Delia’s deal bought Alloy, an online- and catalog-only women’s retailer that was owned by Delia’s.

Without a physical presence, it can be difficult for small businesses to reach potential shoppers. “The retailer has to stand for something,” said Steve Reiner, managing director at B. Riley & Co. “You can’t just close the doors and become e-commerce unless you were really a player beforehand.”

The brand’s strength on social media helped to persuade vendor Taylor Shapiro to commit to doing business with the new operation. “Quite honestly, what intrigues me about Delia’s is the fact that they have 300,000 followers on Instagram,” said Mr. Shapiro, president of Los Angeles-based wholesaler Sunrise Brand’s private-label division. “I can see an audience.”

Working with the scaled-back new Delia’s is akin to working with a retailer with just a handful of locations, something he typically wouldn’t do, he said.

Source : WSJ

P&G CEO Lafley Lays Groundwork for Exit

Procter & Gamble Co. appears to be laying the groundwork for Chief Executive A.G. Lafley to step down as soon as this summer and hand the top job to an internal successor.

In private meetings with Wall Street analysts and investors, senior P&G executives including Mr. Lafley himself have made comments that signaled the 67-year-old CEO, now in his second turn at the helm, could vacate the post this year, people who attended the meetings said. Mr. Lafley is likely to remain chairman for another year or two to help smooth the transition to a new CEO, several analysts have concluded.

The leadership change could set up another period of uncertainty for the world’s largest maker of household products. The maker of Pampers diapers, Olay skin creams and Bounty paper towels has struggled to post solid sales growth since the 2007-2009 economic recession ushered in an era of pickier and more frugal consumers.

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P&G also faces challenges including a struggling beauty business and a strong dollar that hurts its overseas earnings. The company reports results for the first three months of 2015 on April 23.

Mr. Lafley declined to comment through a spokesman.

The CEO’s new successor is widely expected to be David Taylor, a 56-year-old P&G executive who has also been at the company for close to 35 years.

Earlier this year, Mr. Taylor was elevated to oversee businesses that generate close to half of P&G’s sales and profits, including the troubled beauty division.

Mr. Lafley, a 35-year P&G veteran who previously was CEO from 2000 to 2009, came out of retirement two years ago with a mandate to revive the company’s fortunes and find a new successor. His original successor, Robert McDonald, left in 2013 amid shareholder discontent about sluggish performance during his four years in charge.

Mr. Lafley hasn’t publicly mapped out a time frame for his departure, saying he will serve for as long as P&G’s board wants him in the job. “We are not schedule driven,” he said last August on the company’s full-year earnings call when asked how long he would stay.

Since then, recent discussions during meetings with Mr. Lafley and P&G Chief Financial Officer Jon Moeller have led the analysts to conclude P&G could name a new CEO at the end of its current financial year, which concludes in June.

Mr. Lafley has told investors that one of his predecessors, John Pepper, was chairman for the first two years Mr. Lafley was CEO, “and that this co-operative but distinct relationship...was enormously beneficial to the company,” Citigroup analyst Wendy Nicholson wrote in a March report after she spent a day with Mr. Lafley hosting investor meetings in New York.

Ms. Nicholson said one of the biggest takeaways of the meetings was that Mr. Lafley could step down this year—adding she was surprised and disappointed that it might happen so soon, as there is still much work to be done at P&G.

Back in 2009, Mr. Lafley remained chairman of P&G after handing the CEO job to Mr. McDonald. But he resigned from the chairmanship six months later, earlier than many analysts and investors had expected.

Nearly two years into Mr. Lafley’s second term as CEO, there are few signs that P&G has turned things around.

Since his return, the company’s stock price has risen 6%, well below the S&P 500 stock index’s 26.7% gain over the same period. P&G’s sales growth rate has remained stuck in a range of 2% to 3%, excluding currency moves.

On Mr. Lafley’s watch, P&G has stepped up efforts to cut costs and increase manufacturing productivity, simplified its organizational structure and tightened its focus on its biggest, best-known brands like Tide detergent, Crest toothpaste and Pampers diapers.

The company has rolled out new premium-priced goods such as a nimbler Gillette razor and has re-entered the adult incontinence market with a line of products under its Always brand.

Last summer, Mr. Lafley declared P&G would further streamline its operations and try to speed growth by exiting about 100 brands that have dragged down the company’s performance, and narrow its focus to around 65 leading brands.

So far, P&G has moved to shed roughly 40 brands, from well-known names like Duracell batteries and Iams pet food to smaller ones like Camay soap and Vicks VapoSteam, a liquid medication that is poured into steam vaporizers.

The company is aiming to detail plans for the remainder of the divestments or brand exits by this summer.

Mr. Lafley is now working to clean up the sprawling beauty business he built during his first turn at the top. Sales at the division were the worst among P&G’s main business lines in the last three months of 2014—down 6% and the only line to post a drop excluding currency effects.

He is moving to dismantle parts of the division after concluding that expanding aggressively into beauty didn’t play to the P&G’s strengths of mass-marketing products with well-defined benefits to consumers.

Investment bankers representing P&G recently started soliciting bids from potential buyers for chunks of the beauty business, including its Wella and Clairol salon hair-care products division, its cosmetics brands like CoverGirl, and a portfolio of designer fragrances. Those brands collectively generate close to a third of P&G’s beauty sales.

The company is planning to keep its biggest brands such as Pantene shampoo, Head & Shoulders shampoo and Olay skin creams.

To be sure, P&G is regaining its footing in some areas. In the U.S., its largest market, Mr. Moeller recently told investors that P&G is growing or holding market share in 70% of its product categories, according to a March research update from Deutsche Bank analystBill Schmitz. That percentage was around 50% a few years ago.

The company’s profit margins have also expanded, reflecting the initial fruits of its restructuring, but the weakening of many foreign currencies against the U.S. dollar has dampened the effect on P&G’s bottom line and weighed on its sales.

In the year that ends this June, P&G has forecast slightly lower net sales and flat if not lower net profit from the previous year.

“The jury is still out on what Lafley has achieved,” said Bill Chappell,an analyst at SunTrust Robinson Humphrey. “I’m not sure there’s been a lot of tangible change to P&G that’s visible to investors.”

Source : wsj

Peugeot CEO Uses Cost Cuts to Turn Corner on Profitability

Not long after Carlos Tavares became chief executive of struggling French car maker PSA Peugeot Citroën a year ago, he ordered employees to work smarter, not harder.

“There was disarray. People were working like hell, but the methods weren’t appropriate,” said the 56-year-old former race-car test driver. Employees, from the factory floor to sales teams, lacked proper benchmarks, and much effort was wasted as the company drifted farther behind the competition, he said.

The former chief operating officer at Renault SA, Mr. Tavares landed at Peugeot following his abrupt resignation and an unusual public declaration of his frustration at waiting for his boss to retire. Immediately, he slashed costs, by reducing the number of cars it makes and cutting the workforce.

Since then, the company appears to have turned a corner, with the auto division posting an operating profit for the first time in three years.

Peugeot shares have soared 53% so far in 2015. The company will be readmitted later this month to France’s top stock benchmark, the CAC-40 index, following a three-year absence—a symbolic victory for a company that was bleeding cash and mired in an existential crisis during the depths of the eurozone recession.

The auto maker still has much to do, however. It posted a net loss last year and profit margins are lower than its rivals. And, like other legacy car makers, it faces the disruptive threat of tech giants, likeGoogle Inc. and Apple Inc.

Mr. Tavares recently spoke with The Wall Street Journal about cutting costs and finding future growth in a saturated European car market. Edited excerpts:

WSJ: What is your outlook for the European car market?

Mr. Tavares: In Janu Citroenry and February, the growth of the European market was higher than what we expected. We’re a little bit cautious about 2015 because we still believe there is a lot of volatility ahead, mostly coming from the situation in Ukraine and Greece. We still think the overall market in Europe will grow 1%.

WSJ: When you arrived at the company, what did you think had to be changed?

Mr. Tavares: There was a lack of benchmarking that was creating some blindness. In some areas, like inventory management, net pricing management, and manufacturing efficiency, there were big contrasts with the rest of the industry. The company was improving, year after year, but the progress was below the pace of the industry. We were going backward. When I came in, I could see with my eyes, tons of things we could do. That was very striking.

WSJ: Can you give an example?

Mr. Tavares: The Peugeot 308 was the European Car of the Year in 2014. But the car was being discounted at a level that wasn’t consistent with the quality of similar cars and compared with our German competitors. There was no reason we couldn’t price higher. There was some lack of confidence in our capability.

WSJ: The company posted better financial results this year, largely due to lower costs. What did you cut?

Mr. Tavares: Most of it was waste. In the plants, we improved the quality on the line, improved the internal logistics, [reducing the size of] the sites so we can have lower energy costs.

It was about empowering people to make the right, good decisions. If I tell the head of a plant he can [reduce] his plant, sell part of the land and keep the money to reinvest that cash in new equipment, he will look at me and be surprised. Nobody told him before he could do it. That’s the autonomy that we’re trying to deliver to our people.

WSJ: Which factories most needed improvement?

Mr. Tavares: Most of our European plants. They are 30 to 50 years old. Back then, the plants were big, big, big. Now, in some cases, it’s better to be compact and efficient.

WSJ: Peugeot’s inventory levels declined significantly. How did you reduce them?

Mr. Tavares: Raw materials, semiproduced goods, complete cars, even replacement parts. We reduced €1.6 billion (US$1.7 billion) of inventory, with no impact on the business.

If you have two plants that are apart by 50 miles, you don’t have to duplicate all your spare parts for the equipment. You can use one and send it to the other plant if they need it. It’s not rocket science; it’s about good sense.

WSJ: Some analysts applauded the cost cuts but expressed concerns about revenue growth. How do you respond to that criticism?

Mr. Tavares: It would be unfair to say that we didn’t grow. Our volumes grew by 4.3% in 2014. We sold 120,000 more cars. Our progress was 32% growth in China and 8% growth in volume in Europe. We restructured deeply without losing growth in volume.

There’s huge overcapacity in Europe, which has destroyed pricing power. Growth can be generated at the expense of profit, but if there’s no recurrent profit, there is no future.

Many people look at the top-line improvement as more important than profitability. But we are not a startup. There around 200,000 employees. It’s a three-million-car company. It’s a fine balance in the financials. Growth, yes. But only if it’s profitable.

WSJ: Where is Peugeot in its development of autonomous cars and how big is the competitive threat from Google, or other tech companies, in the auto business?

Mr. Tavares: I consider automated drive very important. We will bring back more quality time to the driver. For instance, we want to give you the opportunity on a Sunday night when you come back from the countryside to talk with your wife and kids without being completely focused on the driving.

Tech companies will soon realize that the cost of entry into the auto industry is extremely high. It’s not only about intensive investments but the accumulation of expertise. At one point in time, they’ll realize it’s better to collaborate with auto makers.

WSJ: Are you working with Google or Apple now?

Mr. Tavares: We don’t have discussions with them at this stage. But that doesn’t mean we won’t one day.

Source : WSJ

Fashion Executive Sets About Fixing Gucci

MILAN—When Marco Bizzarri became CEO of Bottega Veneta in 2008, the leather-goods brand was flying high, with demand soaring for its trademark woven bags. Even so, the Italian executive worried that fashionistas’ enthusiasm would eventually cool.

So he shook up Bottega’s assortment. He added more shoes and clothes and injected more colorful, fashion-oriented designs from creative director Tomas Maier. Five years later, revenue more than doubled to €1 billion, or about $1.13 billion.

Mr. Bizzarri’s ability to keep a brand hot will be tested in his new role as chief executive of the much larger Gucci brand, which, like Bottega, is owned by French fashion giant Kering .

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Gucci needs fixing. Sales started to fall in 2013, a sharp reversal from 17% growth as recently as 2010. The brand was slick and sexy in the 1990s under the creative direction of Tom Ford, but today Gucci’s legendary double-GG marque has gone cold, after years of overreliance on the logo and overexpansion into lower-priced bags and accessories.

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After Mr. Bizzarri’s appointment as Gucci CEO in December, one of his first tasks was to pick a new creative director. He installedAlessandro Michele, a Gucci veteran.

On Wednesday in Milan, Mr. Michele’s first women’s collection was saluted as a significant change of direction for Gucci, with a more sophisticated, intellectual and androgynous feel. Aimed at bringing a more contemporary look to the brand, Mr. Michele’s designs didn’t recycle the Gucci’s well-known floral prints, which were evident in past collections by the ousted previous chief designer, Frida Giannini, who was booted in December along with Gucci’s former chief executive Patrizio di Marco.

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One of the new looks from Gucci women's Fall-Winter 2015-2016 collection, part of the Milan Fashion Week, unveiled on Wednesday.PHOTO: ANTONIO CALANNI/ASSOCIATED PRESS

Mr. Bizzari’s appointment of Mr. Michele has been questioned in some corners of the fashion industry. Some wonder whether the little-known designer lacks the star power to restore Gucci’s glamour and worry that Mr. Michele, who was Ms. Giannini’s main assistant, may not mark a break from the tenure of his predecessor, whose designs often failed to conjure up the red-hot designs that distinguished Gucci.

“Gucci was all about a sexy lady,” says Michael Ward, chief executive of Harrods in London. “I don’t think she captured the real Gucci woman.”

These concern may have eased after Wednesday’s show, as fashion reviewers agreed that Mr. Michele’s collection was different from anything previously seen at Gucci for a long time.

According to people familiar with the situation, Mr. Bizzarri liked Mr. Michele’s contemporary vision for the house and wanted someone with a deep knowledge of the house’s workings.

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Gucci CEO Marco Bizzarri and Emmanuelle Alt, editor of Vogue Paris, at the Gucci show during the Milan Fashion Week on Wednesday. PHOTO: VENTURELLI/GETTY IMAGES FOR GUCCI

Mr. Bizzarri, a longtime fashon executive who earlier in his career was CEO of Kering’s Stella McCartney label, is a trusted lieutenant of the conglomerate’s owner, Francois-Henri Pinault. Last year, Mr. Pinault created a role for him overseeing all of the group’s luxury brands —except Gucci—as part of the French billionaire’s efforts to shed the parent company’s mass-market past and strengthen its luxury division, the conglomerate’s growth driver.

Mr. Bizzarri began to look for ways in which Kering’s brands—which had operated largely separately—could cut costs by sharing suppliers or win better real-estate deals by negotiating store locations for more than one house.

During his eight months in that job, the 52-year-old executive also started fixing problem brands, such as Brioni and Sergio Rossi.

At Brioni, Mr. Bizzarri began to tackle problems with customer service that were damaging the image of a menswear label whose handmade suits cost as much as $8,000. For instance, Mr. Bizzarri found salespeople ignoring customers when he walked into the brand’s Milan boutique. He also learned that Brioni employees had turned down a request by one loyal customer who asked the house’s tailors to craft a suit for him using his own fabric —an unforgivable gaffe in Mr. Bizzarri’s book.

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Gucci’s chief designer Alessandro Michele, following the Gucci show in Milan on Wednesday. PHOTO: GIUSEPPE CACACE/AGENCE FRANCE-PRESSE/GETTY IMAGES

Mr. Bizzarri fired Brioni’s chief, replacing him with Gianluca Flore, who had worked with Mr. Bizzarri running Bottega stores world-wide.

Mr. Bizzarri also fired the head of Sergio Rossi, which has lost money for the past two years as the once-sexy Italian shoemaker struggled to compete against high-wattage names such as Jimmy Choo or Christian Louboutin.

Gucci—which has €3.5 billion in sales and represents about half of Kering’s luxury-division sales—will undoubtedly be Mr. Bizzarri’s toughest challenge yet.

Mr. Bizzarri, who declined requests for an interview, plans to hone the collection and focus on fewer items, according to Kering. He will push more innovative items, after a tepid response to designs by Ms. Giannini that hewed closely to Gucci’s heritage, including bags and scarves inspired by Jacqueline Kennedy and Grace Kelly.

In his two months at the helm, Mr. Bizzarri has begun to address the serious problems in Gucci’s retail strategy. The brand had opened too many stores and often in the wrong locations, particularly in China. It also began selling in middle-brow retailers such as Macy’s, which hurt its image, and lost a prime spot in Bergdorf Goodman tony store in New York.

According to Mr. Pinault, Mr. Bizzarri will slow store expansion—Gucci added over 220 in the past 5 years—and try to fix the existing network. It will stick to the retail concept launched in recent years by Ms. Giannini and now installed in more than half of Gucci’s 500 stores, as a total redo would be too costly. Instead, Mr. Bizzarri may change the façade of stores in major cities.

Gucci needs to regain ground lost with retailers. In London, Harrod’s has stuck with Gucci but Mr. Ward, the retailer’s CEO, said he would expand Gucci’s space only if the house performs “better in the space they have.”

Just weeks after his appointment, Mr. Bizzarri visited with department-stores executives in New York—something Mr. di Marco had long neglected to do—and toured Gucci spaces.

So far, luxury executives have applauded his appointment. “It’s good news,” said Marigay McKee, president of Saks Fifth Avenue, the high-end U.S. department store. “There’s no fear of failure with him.”  - Source WSJ