Kering looks to double profits with turnaround plan to revive Gucci

Kering said Thursday it aims to double profitability and revive its flagship brand Gucci as it announced its highly anticipated strategy to get the company back on track after a year-long luxury slump that hit it harder than its competitors. 

CEO Luca de Meo announced the strategy seven months after taking over the reins, during which investors’ optimism has mounted that he’ll be able to turn the legacy conglomerate around. 

“In a nutshell, a model that worked for a decade, is no longer effective for us,” he said during the company’s Capital Markets Day in Florence on Thursday. “Growth will come first from gaining share, restoring pricing power, and executing better than our peers.”

Investors reacted with skepticism, with shares falling as much as 5% early Thursday before paring losses to trade 4.3% lower as of 8:30 a.m. ET. 

The strategy, dubbed “ReconKering,” includes more than doubling the company’s 2025 recurring operating margin of 11.1% while boosting its return on capital employed to over 20% in the midterm.

Kering also aims to refurbish or relocate two-thirds of its Gucci store network, reduce selling space by 20% and outlets by a third to achieve a doubling of its sales density by 2030. It also aims to reduce overall inventory by 1 billion euros ($1.18 billion) over the next 12 months. 

It is also targeting additional revenue from leather goods of 1 billion euros by 2023, as well as 600 million euros from ready-to-wear and shoes, and 500 million euros from jewelry and watches.

De Meo has already taken steps to reduce debt at the company, including by completing the sale of its beauty division to L’Oreal in March for 4 billion euros in cash. 

The momentous task of turning around its moneymaker Gucci remains a key issue. 

“One key question is how quickly Gucci can regain centre stage and return to healthy growth, as the luxury sector continues to face a mix of structural and cyclical headwinds,” Citi analysts said Thursday morning. 

On Tuesday, Kering reported the 11th straight quarter of organic sales decline at Gucci, and said sales had been hit by the conflict in the Middle East.

Kering, like many of its luxury peers, has seen years of contraction following a boom that ended in 2022. Demand spiked during the Covid-19 pandemic, leading to price hikes that eventually alienated customers. Coupled with weak demand in China, formerly one of the sector’s main growth drivers, businesses suffered.

Gucci has “lost some of its shine,” de Meo acknowledged Thursday. 

“Our priority is to make Gucci unmistakable,” he said. “Not louder, not more complex, simply unmistakable.”

“This work has already begun. We are refocusing the brands around fewer…