Kering stock trades near multi-year low as Gucci weakness weighs on margins

Kering stock remains under pressure as weaker Gucci sales and margin compression weigh on the Paris-listed luxury group, while management pushes through a strategic reset and higher investment to revive growth.

Kering SA (ISIN FR0000121964) stock continues to reflect the luxury group’s transition phase, with investors weighing weaker Gucci performance against a push to reposition the portfolio and restore profitability after a difficult 2023 and early 2024. The Paris-listed owner of Gucci, Saint Laurent and Bottega Veneta is working through a multi-year reset that has so far meant slower growth, lower margins, and higher investment.

Revenue declines in 2023 and early 2024

According to the company’s published annual figures for fiscal 2023, Kering generated group revenue of around EUR 19.6 billion in 2023, down from approximately EUR 20.4 billion in 2022 as luxury demand softened and Gucci lost momentum in key markets. Management noted that the decline reflected both macroeconomic headwinds and brand-specific challenges at Gucci, which accounts for the largest share of group sales.

Within that total, Gucci delivered revenue of roughly EUR 9.9 billion in 2023 compared with about EUR 10.5 billion in 2022, underscoring how central the flagship brand’s slowdown has been for Kering’s overall performance. The lower Gucci contribution combined with higher operating expenses led to a contraction in group operating margin, highlighting the earnings impact of the brand’s repositioning and ongoing creative transition.

On the earnings side, Kering reported recurring operating income of roughly EUR 4.7 billion for 2023 versus approximately EUR 5.6 billion in 2022, illustrating how the decline in sales and heavier investment burdened profitability over the year. Net income attributable to the group also declined, reflecting weaker operating performance and the costs associated with the group’s strategy to reposition several brands in a more competitive luxury market.

Profitability under pressure as investment rises

Kering’s profitability metrics demonstrate the extent of the pressure on the business while it invests to refresh brands and broaden its category mix. Management has emphasized that marketing, retail and design spending increased in 2023 and continued into the first part of 2024, compressing margins even as some non-Gucci brands posted more resilient or growing sales.

Gucci has been at the center of this transition, with a change of creative direction and a planned product reset intended to reaccelerate growth in ready-to-wear, leather goods and accessories. The 2023 revenue decline of about EUR 0.6 billion compared with 2022 underscores the scale of the challenge: even modest negative growth at Gucci has a meaningful impact on group-level revenue and profit because of the brand’s weight in Kering’s portfolio.

Other houses such as Saint Laurent and Bottega Veneta have contributed more stable trends, but they have not yet fully offset Gucci’s slowdown. As a result, Kering’s recurring operating margin in 2023 moved lower year on year, mirroring the reduction in recurring operating income from roughly EUR 5.6 billion to EUR 4.7 billion while revenue slipped from about EUR 20.4 billion to EUR 19.6 billion. For investors, the key question is how quickly the renewed creative direction at Gucci can translate into improved productivity per store and better operating leverage.

Balance sheet supports strategic reset

Kering entered this more challenging phase from a position of financial strength, which has allowed management to maintain investment levels and pursue selective acquisitions. The group has historically generated strong cash flows, and despite the earnings decline in 2023 it retained a solid balance sheet that provides flexibility for brand development, store refurbishments and potential portfolio moves.

While specific debt and cash figures have fluctuated, the company has underlined that its leverage remains manageable relative to earnings, supporting continued shareholder returns alongside investment. Dividend payments have remained a feature of Kering’s capital allocation, though payout decisions are calibrated against earnings trends and the need to fund long-term brand-building initiatives.

From a strategic perspective, Kering continues to seek greater diversification beyond Gucci, both through the growth of other houses and through moves into categories such as beauty and eyewear where it sees long-term potential. The financial commitment required to build these businesses from a smaller base is another factor weighing on short-term margins, reinforcing the perception of a transition phase for the group.

Gucci remains central to Kering’s equity story

Gucci’s performance remains the main driver of equity sentiment toward Kering stock, given the brand’s size and profitability relative to the group. The decline in Gucci revenue to around EUR 9.9 billion in 2023 from roughly EUR 10.5 billion in 2022 illustrates how sensitive group earnings are to trends at this single label. As new collections roll out more widely, investors will watch closely for signs of reacceleration in like-for-like sales and higher contribution margins.

Kering’s management has framed the Gucci reset as a multi-year effort rather than a quick fix, implying that volatility in quarterly results is likely as the brand transitions product lines, marketing messaging and price architecture. This dynamic partly explains why Kering’s earnings multiple has compressed compared with some other large luxury groups: the market is demanding clearer evidence that Gucci can regain sustainable growth without requiring permanently higher investment levels.

Beyond Gucci, the group is working to scale other houses so that they contribute a larger share of both revenue and profit. Over time, a more balanced earnings mix could make Kering less vulnerable to swings in the performance of any single brand, but the path to that outcome involves sustained capex and opex, as reflected in 2023’s lower recurring operating margin.

Kering stock valuation reflects transition risks

On the equity side, Kering stock trades on the Euronext Paris market and has retreated markedly from its historical highs as investors price in weaker Gucci momentum and lower profitability. The share price has in recent periods moved closer to levels last seen several years ago, effectively discounting a scenario of slower growth and a more competitive luxury landscape.

For investors, the current valuation of Kering stock can be seen as a balance between the group’s strong brand portfolio, solid balance sheet and potential upside from a successful Gucci revival on the one hand, and the risks around execution, macro sensitivity and margin pressure on the other. The earnings decline from a recurring operating income of about EUR 5.6 billion in 2022 to roughly EUR 4.7 billion in 2023, despite revenue only slipping from approximately EUR 20.4 billion to EUR 19.6 billion over the same period, encapsulates the profitability challenge the group must solve to re-rate the stock.

Longer term, the investment case for Kering stock will likely hinge on the pace and quality of Gucci’s turnaround, the ability of other houses to scale profitably, and the extent to which the group can leverage its financial strength to expand into new categories without undermining returns. The current market pricing suggests that investors are still waiting for firmer evidence on these fronts before assigning a higher valuation multiple.

Gucci handbags highlight brand repositioning

Among Kering’s various product lines, Gucci’s leather handbags remain emblematic of the brand’s repositioning efforts and are closely watched by the market. Handbags have historically been a major profit driver for Gucci, and the company has emphasized the importance of refreshing these iconic items with new designs while maintaining pricing power and desirability. Changes in the product mix toward higher-end models, limited editions and more exclusive distribution are central to the strategy.

The performance of Gucci’s handbags category also provides a useful gauge of how well the brand’s new creative direction resonates with core customers and aspirational buyers. Strong sell-through of new collections at full price would help support both revenue and margin recovery, while any need for heavier promotional activity or markdowns could weigh on profitability. Because handbags sit at the intersection of brand image, pricing and volume, their trajectory is often seen as a leading indicator for Gucci and, by extension, for Kering’s broader luxury portfolio.

Kering stock on Euronext Paris

Kering stock is listed on Euronext Paris and trades under the ISIN FR0000121964, giving international investors exposure to a diversified luxury group anchored by Gucci, Saint Laurent and Bottega Veneta. The company’s market capitalization and share price levels have adjusted to the more challenging operating environment and the ongoing strategic reset, with valuation now reflecting both the risks and the potential rewards of a successful Gucci turnaround and the expansion of other brands.

Kering at a glance

• Company: Kering SA
• ISIN: FR0000121964
• Ticker: EURONEXT: KER
• Trading venue: Euronext Paris
• Sector / Industry: Consumer Discretionary / Luxury Apparel, Accessories and Retail
• Index membership: CAC 40