Kering’s struggle: flat growth, gucci under pressure, and a shifting strategy

Kering reported tepid first-quarter results on Tuesday, revealing a flat €3.57 billion in revenue, a sobering sign for the luxury conglomerate navigating a turbulent global market.

A delicate balance: sales down, but a glimmer of hope

Fashion and leather goods sales dipped 3% to €2.85 billion, falling short of analyst expectations, while Gucci, the group’s flagship brand, experienced an even sharper decline of 8%, significantly below forecasts of -6%. However, a crucial detail emerged: Gucci showed a slight improvement over last quarter’s dismal 10% drop, hinting at the effectiveness of Luca de Meo’s ambitious turnaround strategy.

“Gucci remains our top priority,” stated CEO Luca de Meo, outlining a “comprehensive turnaround” focused on revitalizing the client experience, streamlining distribution, and fundamentally reshaping the product offering. The deployment of Pierpaolo Piccioli’s designs, beginning with ‘La Famiglia,’ sparked a positive initial reaction, accounting for over 7-8% of SKUs and sales – a figure likely to strengthen with the full ‘Primavera’ collection slated for summer.

Regional disparities and strategic shifts

Despite the Gucci revival, the broader picture paints a complex landscape. Retail sales in Western Europe tumbled 7%, mirroring a 9% decline in North America, a 3% dip in Japan, and a 4% slide in Asia-Pacific. The Middle East, currently representing approximately 5% of Kering’s retail revenue, witnessed a concerning 11% revenue contraction. However, several brands demonstrated resilience, with Bottega Veneta leading the growth charge, followed closely by Balenciaga, which saw a significant sequential improvement.

Re-engineering the brand – a focus on core strengths

The group’s shift in segment reporting – consolidating Gucci’s figures – underscores a deliberate effort to prioritize the powerhouse brand. CFO Armelle Poulou emphasized the positive reception of ‘La Famiglia’ and ‘Primavera,’ highlighting the brand's commitment to a more targeted product strategy. Notably, the reintroduction of the Marmont handbag, enhanced in quality and design, proved particularly successful, a testament to strategic refinement.

China’s challenges and a targeted approach

Kering acknowledged ongoing challenges in China, where a dedicated plan is underway to rebuild cultural relevance through sharper storytelling, bolstered brand ambassadors, and region-specific activations. Addressing investor concerns, Poulou stressed a need to upgrade the store network to recapture consumer interest. The performance of North American retail sales, up 9%, offered a counterpoint to these concerns, suggesting a potential divergence in regional strategies.

Jewelry and eyewear shine – a diversified portfolio

Beyond Gucci, Kering’s jewelry division surged 22% to €269 million, and eyewear experienced a 7% gain to €489 million, demonstrating a commitment to diversifying revenue streams. However, Bernstein analyst Luca Solca cautioned that “it is easier and faster for the market to believe in a revival, than it is to produce it,” reflecting the inherent difficulty in reversing a downward trend.

Looking ahead: florence and a renewed focus

Kering will host its Capital Markets Day in Florence on April 16, where de Meo is expected to detail his strategy for returning all brands – excluding McQueen – to full-year growth. McQueen’s restructuring, involving job cuts, is underway, a pragmatic approach recognizing the brand's structural limitations. The company's resilience, despite these headwinds, suggests a strategic pivot is already taking hold.