Updated 5:36 p.m. ET Oct. 22
PARIS — As it prepares for new chief executive officer Luca de Meo to detail his turnaround plan next spring, Kering will continue to cut costs and curb debt, with plans to ramp up store closures, refinance real estate and dispose of noncore assets.
De Meo pledged to double down on his efforts after the ailing French luxury group on Wednesday reported a 10 percent drop in revenues in the third quarter. Still, a better-than-expected performance at the company’s star brand Gucci provided a glimmer of hope.
Organic sales at the maker of Jackie handbags and Horsebit loafers fell 14 percent in the three months to Sept. 30, beating a company-compiled consensus forecast of a 16 percent decline. This compared with a 25 percent drop for Gucci in the second quarter.
Group revenues totaled 3.42 billion euros, representing a 5 percent decline in comparable terms. This came on the heels of a 15 percent drop in organic sales in the prior quarter, and was markedly better than the 3.31 billion euros the market was expecting.
“Kering’s third-quarter performance, while representing a clear sequential improvement, remains far below that of the market,” de Meo said in a statement.
“This reinforces my determination to work on all dimensions of the business to return our houses and the group to the prominence they deserve. We are working relentlessly on our turnaround, as shown by our recent decisions,” he added.
Since he officially took up his duties on Sept. 15, Kering has made several big moves geared at reviving Gucci and tackling the group’s net debt, which stood at 9.5 billion euros at the end of June.
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Over the weekend, the group said it would sell its beauty division to L’Oréal for 4 billion euros in cash, in addition to granting the French beauty giant long-term fragrance and beauty licenses for some of its top brands. The partnership, hailed as a category game-changer, also includes a joint venture in the field of wellness.
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De Meo did not participate in a call with analysts and media after the publication of the results, but chief operating officer Jean-Marc Duplaix and chief financial officer Armelle Poulou provided some insight into future actions.
No Stone Unturned
Hailing “positive signs of inflection” in the third quarter, with a favorable response to designer debuts at Gucci, Bottega Veneta and Balenciaga during the spring 2026 runway shows, Duplaix said the group would leave no stone unturned in the search for cost savings.
“Our task is to implement structural solutions to the group’s challenges and reduce our sensitivity to cycles. In this endeavor, there are no sacred cows,” he said. “We are using every available lever to reduce our cost base.”
Kering has closed 55 stores so far this year, including 14 in the third quarter, leaving it with 1,758 retail locations at the end of September. Gucci accounted for half the stores shuttered in the first nine months of the year.
De Meo is expected to unveil more radical measures next year.
“We went a little bit too far in terms of expansion of the network, so without providing any figures, you can assume that in the two coming years we’ll continue to rationalize quite drastically the network,” Duplaix said.
He hailed the deal with L’Oréal as a “major step forward” and a “win-win deal,” clarifying that it should deliver a net gain, before tax, for Kering in addition to helping significantly to decrease the group’s debt.
“It’s a good price for both parties, considering the ambitions we have on both sides for our beauty brands but also for the joint venture,” Duplaix said. “All the brands, relatively to their respective size, have the potential to grow quite massively with, of course, an incremental level of royalties for us.”
In a separate results call on Tuesday, L’Oréal CEO Nicolas Hieronimus said he saw billion-dollar potential for Creed and Gucci, once that license is no longer held by Coty. Duplaix clarified that the plan is to wait for the Gucci license to expire.
He praised the performance of the Kering Beauté division, explaining that the decision to sell was prompted by the need to accelerate growth and optimize investments. Duplaix said Kering chairman François-Henri Pinault, who handed over CEO duties to de Meo last month, had started exploring a sale before his arrival, but de Meo sealed the deal.
Having said in July that Kering had no plans to sell underperforming brands, Duplaix indicated a shift in strategy. “We will review, of course, in a very open manner, as we already always did, the relevance of the assets we have in the portfolio,” he said.
However, he excluded a divestment of Kering’s eyewear division, a bright spot in the third quarter with a 6 percent increase in organic sales. “Kering Eyewear is core in the strategy of Kering. It’s doing extremely well, it’s the leader in its segment,” he said.
This appeared to contradict de Meo’s comment in an interview with The Financial Times this week that he remained “pragmatic” with regard to other potential asset sales, including the eyewear business. “I don’t want to close the door because we try to be very open,” de Meo said.
Duplaix also brushed off suggestions that L’Oréal could acquire Giorgio Armani and license its ready-to-wear activities to Kering in a future deal. “We have a lot of challenges in our brands. I think our plate is quite full,” he said. “It’s not a consideration we have so far about Armani.”
All Eyes on Gucci
Third-quarter organic sales fell 4 percent at Saint Laurent, and rose 3 percent at Bottega Veneta.
Sales in the “other houses” division, which includes Balenciaga, Alexander McQueen, Boucheron and Qeelin, were up 1 percent. Jewelry was a “particularly bright spot,” with a double-digit increase, Poulou remarked.
Despite not staging a runway show in Milan, Gucci’s new creative director Demna achieved “exceptional” media visibility and generated “record” engagement and positive reaction across digital platforms with the release of a look book accompanied by a short film featuring an all-star cast headed by Demi Moore, she said.
“With the ‘La Famiglia’ presentation in late September, Gucci has started regaining its fashion authority, reaching a broader audience, including younger customers, and refreshing existing relationships, notably with top clients,” the CFO reported.
The looks were available as a see now, buy now capsule in 10 stores for a duration of two weeks, so the impact on sales won’t be felt until the collection’s full arrival in stores from January, she added.
However, Gucci is seeing “promising early signs of stabilization” in leather goods, thanks to recent launches including the Giglio, Beatrix and Siena bags.
Kering’s overall performance in the third quarter was helped by an improvement in North America, where retail revenues rose 3 percent on a comparable basis following a 10 percent drop in the second quarter. Spending by U.S. customers was almost flat during the period.
Meanwhile, organic sales in the Asia-Pacific region fell 10 percent, versus a 19 percent decline in the prior quarter, aided by improving trends in mainland China, Hong Kong, Macau and South Korea.
Spending by Chinese clients was down in the high teens. “Consumer spending in mainland China is still not very supportive, but we are seeing some sequential improvement,” said Poulou, adding that Golden Week did not have a sizable impact on sales.
Looking ahead, she forecast that Kering will post an overall sales decline of a similar magnitude in the fourth quarter, despite a tougher comparison basis. “Consumer confidence is uneven. There is a lot of uncertainty,” Poulou noted.
Despite a challenging outlook for the luxury sector as a whole, markets have cheered de Meo’s arrival, with Kering’s share price jumping 83 percent since news of his appointment broke in June.
In a research note on Wednesday, Citi analyst Thomas Chauvet maintained his “neutral” rating on the stock ahead of Kering’s full-year results, due to be published in February, and its Capital Markets Day next spring.
“The ‘hope trade’ will likely continue near-term. We would not chase the rally into yearend,” he said, adding more clarity was needed on de Meo’s key priorities and potential restructuring efforts, and the impact of Demna’s new creative vision for Gucci.