Kering stock trades lower as Gucci weakness weighs on margins and outlook

Kering (ISIN FR0000121964) stock has faced sustained pressure as investors digest a weaker earnings trajectory at Gucci and a cautious profit outlook for 2024 following a sharp earnings drop in 2023. According to the companys 2023 full year results release published on 8 February 2024, Kering reported revenue of EUR 19.6 billion for 2023, down from EUR 20.4 billion in 2022, while recurring operating income fell to EUR 4.0 billion from EUR 5.6 billion a year earlier, illustrating how much the groups profit base has compressed as its flagship brand underperforms.

Revenue at EUR 19.6 billion in 2023

In its 2023 annual results, Kering disclosed that group revenue came in at EUR 19.6 billion for the year, compared with EUR 20.4 billion in 2022, representing a decline of roughly 3.9 percent on a reported basis. The same document highlighted that on a comparable basis, revenue decreased by 2 percent in 2023, reflecting softer demand in key regions and a less favorable mix at Gucci. Management explained in that communication that the downturn was most pronounced in the second half, underscoring a tougher backdrop for discretionary luxury purchases as well as brand specific challenges.

The 2023 figures also showed that recurring operating income dropped from EUR 5.6 billion in 2022 to EUR 4.0 billion in 2023, a fall of about 28.6 percent, as profitability was hit by lower sales and continued investment in marketing and store renovations. The company stated in its detailed financial review that the recurring operating margin narrowed to 20.6 percent in 2023 from 27.5 percent the year before, signaling a substantial erosion in profitability. For investors, the margin compression is a central issue because it not only captures short term demand weakness but also the cost of repositioning Gucci and other brands in a more competitive luxury landscape.

Gucci revenue down double digits

Within the group, Gucci remained the largest contributor but also the weakest point. In the same 2023 financial results, Kering reported that Gucci generated revenue of EUR 9.9 billion in 2023, down from EUR 10.5 billion in 2022 on a reported basis. On a comparable basis the brand experienced a mid single digit decline for the year, but the drop intensified later in the period as wholesale rationalization and softer demand from Chinese consumers weighed on performance. That translates into Gucci losing some share in the high end leather goods and fashion market compared with peers that managed to maintain growth.

The companys commentary on Gucci emphasized that profitability at the brand level fell more quickly than revenue. Management indicated that Gucci’s recurring operating income decreased markedly in 2023, with the brand margin contracting as Kering increased marketing spend and funded the rollout of new creative director Sabato De Sarno’s first collections. This combination of lower top line and heavier investment burdened group profits. For shareholders, the question is how quickly the new aesthetic and product pipeline can translate into higher full price sell through and better mix, as that will be critical for restoring Gucci’s margin profile to earlier levels.

Other houses and Saint Laurent show resilience

While Gucci struggled, some of Kering’s other brands provided partial offsets in 2023. In the same annual results, Kering reported that Yves Saint Laurent delivered revenue of EUR 3.3 billion in 2023, an increase compared with EUR 3.3 billion in 2022 when adjusted for scope, while sustaining a strong recurring operating margin above the group average. This confirmed Saint Laurents status as the groups second growth pillar, with leather goods and ready to wear resonating with younger affluent consumers. Management pointed out that Saint Laurent continued to expand its store network selectively and grow in North America and the Middle East.

Kering’s Other Houses division, which includes labels such as Bottega Veneta and Balenciaga, saw more mixed trends. Bottega Veneta posted stable revenue close to EUR 1.6 billion in 2023, while maintaining a high proportion of leather goods with limited discounting. In contrast, Balenciaga continued to recover from reputational issues that affected late 2022 performance, and Kering indicated that the brand’s revenue was still below its prior peak. The balance between these brands mattered because it showed that the group is not wholly dependent on Gucci, yet the flagship label remains decisive for overall earnings.

Net income and cash flow under pressure

On the bottom line, Kering’s 2023 net income attributable to the group decreased to EUR 2.3 billion, down from EUR 3.6 billion in 2022, mirroring the decline in recurring operating income and reflecting higher financial charges. The company reported that free cash flow from operations came in at approximately EUR 3.0 billion in 2023, compared with more than EUR 3.2 billion the year before, as lower earnings were partially offset by working capital control. Management emphasized its intention to maintain a disciplined investment approach while continuing to fund flagship store openings and strategic projects in eyewear and beauty.

The board proposed a cash dividend of EUR 14 per share for 2023, matching the prior year’s level despite the lower profit base, highlighting a desire to signal confidence and maintain shareholder returns. At a share price in the low EUR 300s earlier in 2024, that dividend implied a yield in the area of 4 percent, which is relatively high for the luxury sector. While an attractive yield can underpin valuation, it also ties the company more closely to cash generation at a time when it is investing heavily in brand repositioning.

Guidance and early 2024 trading indicate continued reset

In its commentary accompanying the 2023 results, Kering guided for a further decline in recurring operating income in 2024 compared with 2023, acknowledging that the turnaround at Gucci will take time and that investment levels will remain elevated. The group indicated that it expects recurring operating income in 2024 to be down by around 10 percent relative to 2023 on a reported basis, assuming current market conditions. This outlook contrasts with some peers that have been able to maintain or grow profits, and it helps explain why Kering stock has lagged other large luxury names over the past year.

In its first quarter 2024 sales update, Kering reported that group revenue reached approximately EUR 4.5 billion, representing a low double digit decline on a comparable basis versus the same period of 2023. Gucci was again the main drag, with a reported double digit drop in sales, particularly in the Asia Pacific region. The company reiterated that the impact of new collections would start to be visible only later in 2024 and that the first half would remain challenging. For investors, this reinforces the view that 2024 is likely to be another transition year rather than an immediate rebound.

Gucci as the key product engine

For Kering, Gucci remains the central product engine that underpins the groups long term equity story. The brand has historically generated roughly half of group revenue and an even larger share of recurring operating income, thanks to its high margin leather goods and ready to wear lines. In peak years, Gucci grew at double digit rates and set trends in handbags and sneakers, making it one of the most visible luxury labels globally. The current creative reset aims to move the brand toward a more understated, timeless aesthetic while retaining strong desirability among younger consumers.

The first runway collections under the new creative direction emphasize classic silhouettes and higher end materials, with a focus on core categories such as handbags, footwear, and ready to wear. Kering has indicated that it intends to concentrate more on full price sales, reduce promotional exposure, and strengthen the exclusivity of key lines. For investors tracking Kering stock, how quickly these changes translate into renewed traction in China, the United States, and Europe will be decisive. If Gucci can return to sustained growth in the mid to high single digit range over a multi year period, it would help rebuild group margins and justify a higher valuation multiple.

Stock reflects transition and earnings decline

Kering stock is listed in Paris and is part of the CAC 40 index, which gathers the largest French listed companies by market value. The groups market capitalization has adjusted alongside the earnings downgrade, with the share price trading well below its peak levels reached during the post pandemic luxury boom. The combination of lower profit, a still generous dividend, and uncertainty over the speed of Gucci’s recovery has kept the valuation in a transition zone. For many investors, the stock currently prices in execution risk around the brand reset but also offers leverage to a potential turnaround.

From a broader sector perspective, Kering competes with other global luxury groups that have shown more resilient revenue growth and higher margins in recent quarters. The underperformance relative to these peers underscores how brand specific factors can overshadow general industry trends. If Kering can demonstrate, through upcoming quarterly updates, that Gucci’s new collections are gaining traction and that other houses continue to grow steadily, sentiment on Kering stock could improve over time as visibility on earnings stabilizes.