PARIS — Kering is ramping up its cost-cutting efforts as it prepares to welcome new chief executive officer Luca de Meo, who has a reputation as a “cost killer” specialized in turning around ailing companies.
Much of the presentation of the French luxury group’s first-half results on Tuesday focused on its efforts to slash expenditures and curb debt, which include closing stores, selling real estate and reducing headcount.
Kering is battling to stem the ongoing hemorrhage at Gucci, which posted another 25 percent decline in organic sales in the second quarter as consumers wait for new creative director Demna’s debut presentation in September, which will be accompanied by a sprinkling of see-now, buy-now products in stores.
Group net profit plummeted 46 percent in the first half, highlighting the challenges faced by de Meo when he takes the reins on Sept. 15, succeeding François-Henri Pinault, who has held the title since 2005 and navigated the family-controlled conglomerate through multiple transformations. Pinault remains chairman.
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“The first half of 2025 has been a period of momentous decisions for Kering,” Pinault said in a statement, referring to de Meo’s appointment and the arrival of new creative directors at Gucci, Balenciaga and Bottega Veneta.
“Though the numbers we are reporting remain well below our potential, we are certain that our comprehensive efforts of the past two years have set healthy foundations for the next stages in Kering’s development,” Pinault added.
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Kering said it will close more stores than initially anticipated after another dismal quarter.
Revenues in the three months to June 30 fell 18 percent at reported exchange rates to 3.7 billion euros, representing a decline of 15 percent in comparable terms. This was below the 3.75 billion euros the market was expecting, and marked a slight worsening from the first quarter.
Chief financial officer Armelle Poulou said the group now plans to shutter 80 boutiques in 2025, up from the 50 announced at the start of the year.
There were 41 net closures in the first half, with Gucci and the “other houses” group — mainly Balenciaga and Alexander McQueen — accounting for 18 each. Kering also nixed seven outlets, and plans further store closures in 2026 and 2027.
Most of its luxury brands saw organic sales declines in the second quarter.
Saint Laurent fell 10 percent, and the “other houses” division 16 percent. Bottega Veneta was a moderate bright spot, with a 1 percent rise. The Kering eyewear and corporate division also bucked the trend with a 3 percent increase.
By comparison, comparable sales at LVMH Moët Hennessy Louis Vuitton’s key fashion and leather goods division were down 9 percent year-over-year in the second quarter, missing consensus estimates.
No Quick Fix
However, Kering said it had no plans to sell underperforming brands, amid reports that LVMH is shopping around Marc Jacobs, after offloading its stakes in Off-White and Stella McCartney last year. Kering is focused instead on redressing ailing labels like McQueen, which is undergoing a restructuring.
“We have a clear strategy for all the brands, and we are working to execute properly the strategy brand by brand,” said Jean-Marc Duplaix, deputy CEO in charge of operations and finance. “But so far, when it comes to the portfolio of brands, we have no plan of disposal.”
Weighed down by trade wars, geopolitical tensions and financial market volatility, the global market for personal luxury goods will likely fall by between 2 and 5 percent this year, according to the latest Luxury Goods Worldwide Market Study from Bain and Altagamma.
Compounding anemic demand in China and volatility in the U.S., Kering was impacted by a “sharp decline” in tourism.
Sales in directly operated stores fell 19 percent in Asia-Pacific and 10 percent in North America, an improvement compared with the first quarter. They were down 29 percent in Japan and 17 percent in Western Europe as strong currencies deterred foreign shoppers.
Poulou said the group has anticipated the trade deal reached on Sunday under which European Union goods entering the U.S. will be subject to a 15 percent tariff.
“We consider that this is manageable through price adjustments,” she said, noting that some brands preemptively raised prices in the second quarter. A second wave of increases could follow in the fall, depending on consumer sentiment.
Francesca Bellettini, Kering’s deputy CEO in charge of brand development, said the outlook in China remains murky, despite signs of resilience in high-end products such as fine jewelry and watches.
“The general economic environment still creates a low consumer confidence. Currently, the rate of saving is very high,” she said.
“High-quality products are the ones that are performing better at the moment. We still remain positive on China,” Bellettini added. “But we don’t know yet when the trend is going to change. It’s very difficult to say.”
While Kering has been trimming costs across the board, it does not see a quick return to profit growth.
Recurring operating profit for the first half was down 39 percent to 969 million euros, above the consensus estimate of 933 million euros. The recurring operating margin fell to 12.8 percent from 17.5 percent in the same period a year ago.
Kering expects the EBIT margin to decline again in the second half, but much less than in the first six months of the year, Poulou said. Given the ongoing weakness in Asia, it has revised downwards its forecast for the gross margin, which is now expected to remain stable in the second half, instead of improving.
Hunting for Cash
Kering cut first-half operational expenditures by 11 percent in reported terms, with a substantial contribution from fixed costs. Poulou foresees a decline in the mid- to high single digits for the full year, namely to preserve advertising and promotions spend to sustain brand visibility and amplify upcoming designer debuts.
Headcount is down 4 percent year-to-date, with Duplaix noting that staffing levels at Gucci are 22 percent below their 2022 peak.
Capital expenditures amounted to 431 million euros in the first half, down 20 percent year-over-year excluding real estate, and were expected to total 1 billion euros for the full year.
Kering said it generated 1.5 billion euros in the first half from the ongoing refinancing of real estate and other assets, with another 1.7 billion euros projected for the second half and beyond.
Under a deal with private equity firm Ardian valued at 837 million euros, Kering agreed to transfer three of its prestigious addresses in Paris to a new joint venture. It has also sold a building in Tokyo’s Omotesando district and The Mall Luxury Outlets, which operates two luxury outlet destinations in Italy.
In a research note earlier this month, Bernstein analyst Luca Solca said de Meo, a turnaround specialist with decades of experience in the automobile industry, must curb Kering‘s elevated debt levels, and perhaps “negotiate a larger ‘equity for Valentino’ deal with Mayhoola.”
Two years ago, Kering bought a 30 percent stake in Valentino for 1.7 billion euros in cash as part of a broader strategic partnership with the Qatari investment fund. The French group has an option to buy 100 percent of Valentino’s capital by 2028, while Mayhoola could become a shareholder in Kering.
According to Bernstein’s tallies, Kering will need up to 3.4 billion euros in cash to pay for the remaining 70 percent.
Duplaix said that while he could not speak on behalf of Mayhoola, he did not believe it would be advantageous for the company to exercise its put option in 2026, given that Valentino’s performance in 2025 will be impacted by efforts to streamline its distribution.
In the event that Mayhoola cashes out early, the price would be “substantially” below 4 billion euros, the executive said in response to an analyst’s question.
He added that de Meo likely will not lay out his vision until next year.
“Luca has already met with several key internal stakeholders in the group, starting with François-Henri, of course, but also Francesca and myself, and he’s preparing for his formal arrival,” Duplaix said.
“We are all looking forward to working with him but of course, it will be up to him to define his road map and to tell you when he will have the occasion to present his ambitions,” he said.