Revenue down 10%, profit plunges 40%! Gucci is deep in a winter slump, Kering Group hopes for a turnaround in 2026.

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French luxury giant Kering Group is experiencing its toughest profit crisis in a decade. Although the drop in fourth-quarter sales was slightly better than expected, the group's flagship brand Gucci has seen declining revenue for ten consecutive quarters, annual operating profit has plummeted by more than two-thirds compared to three years ago, profit margins have been halved to 11%, and the gap with rival LVMH continues to widen.

On Tuesday, Kering Group announced fourth-quarter sales of 3.9 billion euros, a year-on-year decrease of 3% on a currency-adjusted basis, better than analysts’ expected 5% drop. Gucci brand revenue fell by 10%, slightly better than the market's expectation of a 12% decline, but this marks the brand's tenth consecutive quarter of declining revenue.

Chief Financial Officer Armelle Poulou said that Gucci saw signs of improvement "in almost all regions" at the end of last year, supported by newly launched products and handbag sales. She emphasized, "2025 does not reflect the Kering Group's true potential or the strength of our brands, but it lays a foundation for future recovery."

This performance highlights the severe challenges facing Kering Group. Since the appointment of new CEO Luca de Meo in June last year, the group's share price has risen by about 50%, but investors are still awaiting details of a concrete recovery plan.

Narrowed Decline Fails to Conceal Weakness

Although Kering Group's fourth-quarter sales of 3.9 billion euros narrowed the decline, the downward trend continues. Gucci, the Italian flagship brand accounting for most of the group's profits, saw revenue fall by 10%, continuing the brand's persistent slump since 2022.

CFO Poulou pointed out that thanks to newly launched products and handbag sales, Gucci saw some improvement in almost all regions by the end of last year. However, these positive signals have yet to turn into a substantial performance rebound.

In the face of an uncertain business outlook, Kering Group further reduced its store network, with a net closure of 75 boutiques in the fourth quarter. Poulou said more closures are planned. The group's brands include Balenciaga, Bottega Veneta, and Yves Saint Laurent.

Gucci’s Dilemma Continues to Deepen

Gucci’s troubles began in 2022. After former star designer Alessandro Michele’s maximalist style fell out of favor, sales have remained weak, with ten straight quarters of declining revenue. This situation has put Kering Group under close investor scrutiny over its high debt and declining profits.

Last year, Kering Group’s operating free cash flow, excluding one-off income from property sales, fell 35% to 2.3 billion euros. This figure highlights a significant deterioration in the group’s cash-generating ability.

JPMorgan analyst Chiara Battistini noted, "For Kering Group, the key is (to regain) broad global appeal." This identifies the group’s core issue—how to win back consumer favor.

Profitability Drops Sharply

The slump in Kering Group’s profitability is alarming. The group’s annual operating profit was 1.63 billion euros, less than a third of the 2022 level. The overall operating profit margin plunged from 28% three years ago to 11%; Gucci’s profit margin dropped sharply from 36% to 16%.

This performance is in stark contrast to its competitors. Last year, LVMH achieved a profit margin of 22% despite an industry-wide luxury slowdown; its leather goods and fashion division—home to Louis Vuitton and Dior—reached a profit margin of 35%. Kering's gap with industry leaders continues to widen.

These figures underscore the grave challenge facing Kering: even after the new CEO de Meo took office and the stock has risen by about 50%, the group still needs fundamental operational improvement to catch up with its peers.

Looking to Recover by 2026

Despite the current challenges, Kering Group management remains cautiously optimistic about a future recovery. CFO Poulou stressed that 2025 will lay the foundation for future recovery, implying that a real turnaround may not be seen until 2026.

Since Luca de Meo was appointed CEO in June last year, market confidence in Kering Group has partially recovered, with the stock rebounding about 50%. But investors are still waiting for de Meo to unveil concrete details of the revival plan to assess if the group can truly emerge from its current predicament.

A slightly better-than-expected fourth-quarter result has given the market a glimmer of hope, but this is far from enough to prove the group has emerged from its slump. Whether Kering can truly turn around by 2026 will depend on its ability to successfully reshape brand appeal, improve operational efficiency, and regain its position in the fiercely competitive luxury market.

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