Kering's CEO Highlights Fragile Recovery Amid Gucci Sales Decline

Kering's Financial Performance and Future Outlook

By Helen Reid and Tassilo Hummel

PARIS, Feb 10 (Reuters) - Kering reported a slightly smaller-than-expected drop in fourth-quarter sales on Tuesday, as new CEO Luca de Meo battles to stabilise the Gucci owner. 

It was the first quarter under the leadership of former Renault boss de Meo, who has promised to restore Kering's margins and take bold decisions to restructure the group that has come under intense investor scrutiny. 

Sales Performance Overview

"We're still far from where we want to be. We don't have everything in place yet, but we're building every day with focus," de Meo told analysts on a call.

Challenges Facing Kering

Sales reached 3.9 billion euros ($4.64 billion), down 3% from the previous year when adjusted for currency swings but beating analysts' consensus forecast for a 5% drop, according to Visible Alpha. 

CEO's Strategy for Recovery

Revenue dropped 10% at Italian flagship label Gucci, which accounts for most of Kering's profit, the 10th straight quarterly decline but not as bad as analyst expectations of a 12% fall.

"With sales trends improving quarter after quarter, the momentum is real - early, fragile, but real. I can guarantee you that we will build on it," de Meo added.

Grappling with weak sales since the maximalist styles of Gucci's former star designer Alessandro Michele fell out of fashion in 2022, Kering has faced heightened investor scrutiny over its high debt and declining profitability. 

Finance Chief Armelle Poulou told journalists Gucci saw some improvement at the end of last year in "almost all regions", helped by newly introduced products and handbag sales.  

Facing an uncertain business outlook, the group, which also owns Balenciaga, Bottega Veneta and Yves Saint Laurent, last year reduced its store network by 75 boutiques with further closures planned, Poulou said. Operating costs declined by 9% over the year.

"Kering is just at the start of a multi-year turnaround and the FY25 results should be enough to remind investors of the direction of travel," Deutsche Bank analysts said. Kering's shares were expected to rise 5% when the market opens.

Still, the earnings underscored the steep challenges Kering faces to catch up with peers even though its shares have risen around 50% since de Meo's appointment was announced last June. 

Kering's annual operating income reached 1.63 billion euros,  less than a third of its 2022 level. Its operating profit margin fell to 11% group-wide and 16% at Gucci, down from 28% and 36% three years earlier. 

By contrast, LVMH delivered a 22% margin last year amid a broader luxury slowdown, with its leather and fashion division - home to Louis Vuitton and Dior - hitting 35%.  

Kering reported a net loss of 29 million euros from continuing operations for the year, saying this was mainly due to restructuring costs. Excluding those costs, net income was at 532 million euros, down from 1.2 billion euros in 2024. 

TURNAROUND HOPES 

Armed with one of the largest pay packages in corporate France, potentially exceeding 20 million euros a year, former Renault boss de Meo has moved quickly to address the group's debt problems and streamline its unwieldy governance structure. 

In October he sold Kering's beauty business and some brand licences to L'Oréal for 4 billion euros, raising cash and securing royalty revenue streams but cutting off a potential future growth leg.

The group on Tuesday announced net debt now stood at 8 billion euros, as well as around 5 billion euros of long-term lease liabilities.  

JPMorgan analyst Chiara Battistini said investors welcome de Meo's balance-sheet clean-up, but a return to financial strength hinges on one thing: selling more.

"Driving top line is, I think, the hardest thing to do," she said. 

In an internal memo to managers last autumn, de Meo said that sell-through for Gucci's leather goods, or the share of items sold at full price, sat far below rivals Louis Vuitton and Hermes.   

"No industrial company can survive producing 3 to sell 1!", de Meo said in the memo. 

(Reporting by Helen Reid and Tassilo Hummel, Editing by Lincoln Feast)