Kering’s road to recovery is paved with patience

After a surprising pop in its stock prices despite lackluster Q4 earnings, some analysts believe Kering may finally be entering the early stages of a turnaround.

The French group has had a bruising few years, with sales sliding and its crown jewel Gucci consistently underperforming. But under new CEO Luca de Meo, who officially came on board in September, and Demna taking over as creative director of Gucci in July, experts are hoping for a better year.

“New CEO, new creative personality over Gucci…the market responded positively based on the sequential improvement that they posted,” Michael Prendergast, managing director in the consumer and retail group of Alvarez & Marsal, told Retail Brew. “It’s very early in a turnaround for them, so to actually post improvement was very positive.”

He added that while it’s too soon to expect a dramatic transformation, operational changes—store closures, cost reductions, and tightened discipline—signal that former Renault executive de Meo is “diligent and methodical,” which Prendergast said is essential for a successful restructuring. Kering is also reportedly selling its beauty division to L’Oréal as part of a ~$4.7 billion deal that’s part of its restructuring.

“You need to understand the data, the facts, what the opportunities are, and then execute on them,” Prendergast said. “If I was an investor, I would be encouraged about the moves that he has made so far, because he seems to be controlling the controllables, which is rule No. 1 in an operational turnaround.”

As signs of recovery emerge, all eyes remain on Gucci, whose prolonged slump has played an outsized role in the “75% drop in Kering’s value since the summer of 2021,” according to Reuters. But patience is key, Prendergast said, as much of what Gucci delivered during the holiday period preceded Demna’s appointment.

“The future really is the question of, what type of creative force, from a positive standpoint, will he be able to infuse into the brand and the ultimate interface with the customer?” he said.

A rebound at Gucci would also be a critical indicator for the entire group, even though Kering also owns heavyweights like Saint Laurent. Still, as Prendergast put it, Gucci remains the company’s “flagship brand.”

“You have to get Gucci right,” he said. “That’s No. 1. You have to get the operational, financial details of the company right, and then it makes very good business sense to get the other brands all headed down a successful path. Then, based on the response from the customer base, decide where to reinvest and start to invest in marketing, in stores, and creative talent on a brand-by-band basis.”

He said that while Kering has also launched an initiative called House of Dreams that invests in emerging labels (to reduce reliance on Gucci), “an emerging brand is not going to turn into a multibillion-dollar entity overnight.”

“Five to 10 years down the road, however, it absolutely can,” he added.

As the industry waits to see whether Kering’s reset translates into growth, Prendergast said the company is doing what it needs to, much like the approach taken by LVMH.

“It’s the same thing as LVMH where it’s a good time to go back into the gym and get into elite athlete shape, because the marketplace is a little uncertain and soft based on the macro factors,” he said. “That’s also why you saw both CEOs with a cautious tone, setting the stage, lowering expectations, which is exactly what they should be doing.”