Kering faces an unprecedented crisis, with Gucci struggling and profits falling sharply. Between repositioning strategies and acquisitions, the luxury giant seeks a revival in the global market
2024 is turning out to be a dark year for Kering, the French luxury giant that controls iconic brands such as Gucci, Balenciaga, Saint Laurent and others. With its third worst annual performance since 1990, the stock has fallen by 30% annually over the past three years, signaling a structural crisis that cannot be ignored.
Macroeconomic tensions, rising interest rates and geopolitical uncertainty have accentuated the slowdown in the luxury market, putting pressure on the group’s balance sheets. The results shared on February 11 highlight the weakness of the Gucci brand, the group’s main brand, and are worrying the stock market public.
And yet, there still seems to be hope. What changes could reverse the situation?
Focus on the year: for Gucci it is deep red
The group’s accounts are weighed above all by the decline in sales and profitability of Gucci, the flagship brand of Kering. The drop in sales is part of a broader context of reduced spending on luxury goods by the aspirational segment, i.e. the upper-middle-class customer segment that has traditionally supported the brand’s sales. This is not just a phenomenon linked to the economic situation, but a change in the purchasing habits of a key part of the iconic fashion brand’s clientele.
Similarly, the change in creative direction from Alessandro Michele to Sabato De Sarno has raised doubts among investors, with a less than positive market response. One fact remains: the debut of the new collections has so far produced mixed results, with a lukewarm reaction from both customers and industry analysts.
In an effort to diversify its brand portfolio and reduce its dependence on Gucci, Kering has acquired 30% of Valentino, with an option to reach 100% by 2028. The operation aims to strengthen the group’s presence in the haute couture and ultra-luxury segments, where Valentino enjoys a more stable customer base and is less exposed to macroeconomic fluctuations. According to many analysts, this move could also reopen the door to a possible return of Alessandro Michele, a key figure in Gucci’s recent success, to relaunch the brand and bring it back to sustainable growth.
A negative quarter: the numbers of decline
The last quarter of 2024 highlighted a series of data that confirm the critical phase of Kering. Net income stood at $1.133 billion, down 62% year-on-year. Total revenues amounted to $17.194 billion, down 12% versus 2023. EBITDA stood at $4.66 billion, down 29%. Retail sales, including e-commerce, fell 13% on a comparable basis, while wholesale revenues contracted 22%.
Operating margins deteriorated significantly, with a reduction in margins affecting the entire Kering brand portfolio.
Does Kering still have a future? Positive factors and recovery strategies
Despite the current worrying picture, there are some elements that could represent a turning point for Kering.
One of the key aspects of Gucci’s crisis is its strong exposure to aspirational consumers, the upper-middle class who aspire to luxury. In a context of inflation and rising living costs, these customers have reduced their purchases of luxury goods. The average spending per customer in the aspirational segment has fallen by more than 10% in 2024.
On the contrary, brands that target the affluent clientele, the truly wealthy, such as LVMH and Hermès, have performed better. The ultra-exclusive luxury segment recorded growth of 7% in 2024, driven by solid demand in Asian and Middle Eastern markets. Its intention to acquire brands like Valentino could therefore represent a response that should not be underestimated from a strategic point of view.
Kering CEO François-Henri Pinault acknowledged the difficulties of the current year, but tried to reassure investors by declaring that it has been a difficult year, but they have accelerated the transformation of the maisons and strengthened the solidity of the brands in the long term. But can there really be a significant transformation? The real challenge for Kering will be to reposition Gucci on a more exclusive segment, similar to Hermès, and invest in other brands such as Valentino, Bottega Veneta and Balenciaga.
Kering Technical Analysis: Signs of Recovery or Further Risks?
From a technical point of view, the Kering stock has gone through a sharp decline, breaking key support levels and approaching the lows of the last five years. Technical analysts report that the stock has strong support in the €220-210 area, with an initial resistance target at €260 and then at €340.
Despite the difficult moment, it is premature to talk about the end of Kering. The group owns brands with a strong historical value and a global distribution network that could facilitate a recovery in the coming years. However, there is no shortage of reasons to be pessimistic: the challenge for Kering will be to diversify the portfolio and reposition Gucci, making it less dependent on the aspirational consumer and more focused on the luxury elite.
Original article published on Money.it Italy 2025-02-11 11:18:00. Original title: Kering (Gucci), utili in rosso. È la fine del colosso della moda?
