Kering CEO Luca de Meo has pledged to more than double the luxury group’s operating profit margin and boost the appeal of its flagship Gucci brand in a bid to reassure investors who are nervous due to economic uncertainty and war in the Middle East.
In a more than three-hour presentation to investors and analysts in Florence, the birthplace of Gucci, the former Renault boss said he would more than double Kering’s profit margins, reduce and improve the company’s store network and expand its jewelry sector.
Kering shares fell on the Paris stock exchange after the presentation, trading down around 2.5% at 10:20 GMT.
Gucci, which accounted for about 60% of Kering’s profit last year, was Kering’s main source of revenue until 2023, when a change in tastes hurt its performance and that of the entire group.
“Our business had become structurally unbalanced,” said de Meo, adding that the group, and Gucci in particular, had become overly reliant on volatile fashion cycles.
While de Meo spoke, Kering’s controlling shareholder and president, François-Henri Pinault, watched from the front row of the audience. Pinault left office last year, amid falling sales and high debt, to make way for de Meo.
Kering’s return was below the luxury sector
Kering shares have risen more than 40% since de Meo’s appointment was announced last June. They have fallen 28% since the high recorded in October, in line with the general performance of the luxury sector.
Operating returns, however, still lag behind.
Doubling this from last year’s 11% would put the company more in line with its industry peers.
In slides detailing the strategic plan, Kering also said it would reduce inventory — a burden on its balance sheet — by 1 billion euros ($1.18 billion) over 12 months.
“The statement remains vague on quantified near-term guidance, with no explicit revenue or margin targets for the full year 2026 or 2027,” JPMorgan analyst Chiara Battistini wrote in a note after Kering outlined the restructuring plan in a press release.
Unmistakable Gucci and customer obsession
Gucci, which de Meo ranked alongside Ferrari and Nutella chocolate spread as one of Italy’s icons, is undergoing an overhaul under the direction of designer Demna, who took over last year after the styles of his predecessor, Sabato de Sarno, failed to gain traction.
De Meo said his goal is to make Gucci styles unmistakable again, while transforming the brand into a “completely customer-focused organization” with fewer stores but a better understanding of its customers in all regions.
He said he would more than double the share of high-margin leather goods in revenue — or 1 billion euros in additional sales — by 2030.
The tense geopolitical context will likely complicate De Meo’s mission.
Kering, like its rivals LVMH and Hermès, said this week that the escalating conflict in the Middle East, which began with US and Israeli airstrikes on Iran in late February, had reduced sales of luxury goods in the Gulf region.
This has also indirectly impacted their business through reduced travel.
“A recovery story is easier to execute when the macroeconomic environment is expanding,” said Soliane Varlet, equity portfolio manager at Mirova.
She added that inflation has affected middle-class consumers more than the super-rich, which could complicate matters for Kering, whose brands primarily target consumers who aspire to a luxury lifestyle.
Objective to increase the participation of jewelry and glasses
To try to make Kering more resilient, de Meo is seeking to increase sales of jewelry and glasses, which so far represent only a small fraction of total revenue.
Kering’s eyewear division, which also produces glasses for Richemont brands including Cartier, will make luxury smart glasses in partnership with tech giant Google, de Meo said, confirming a previously announced ambition.
Regarding acquisitions, the French conglomerate said it would adopt a “highly selective” approach, with the aim of ensuring product quality and supply chains. The company, in a separate statement, said it would acquire a minority stake in fast-growing Chinese fashion brand Icicle.
