Kering's High-Stakes Reckoning: Is Selling Valentino the Price of Survival in a Slowing Luxury Market?

Kering, the French luxury giant, finds itself at a pivotal juncture as it grapples with the strategic and financial implications of its 30% stake in Valentino. Acquired for €1.7 billion in 2023, the investment was meant to diversify Kering's portfolio beyond its struggling flagship brand, Gucci. However, the luxury sector's prolonged slowdown and Valentino's underperformance have turned the deal into a financial albatross. With Kering's net debt exceeding €10 billion and Gucci's revenue down 24% year-on-year in Q1 2025, the question looms: Is divesting Valentino the necessary but costly reset the company needs to stabilize its balance sheet and refocus on core brands?

The Weight of a Sinking Asset

Valentino's financials tell a troubling story. In 2024, the brand reported a 2% revenue decline to €1.31 billion and a 22% drop in EBITDA to €246 million. Operational turbulence further compounds these challenges: a labor-related court administration of its handbag unit in Italy and the CEO, Jacopo Venturini, on medical leave. These issues have eroded investor confidence, with Kering's shares down over 60% in two years despite its 2023 acquisition of Valentino.

The original 2028 agreement to acquire the remaining 70% of Valentino—a potential €4–6 billion outlay—now appears unviable. Analysts at RBC Capital Markets argue that a partial sale or IPO of Kering's stake could unlock €1–2 billion in liquidity, allowing the conglomerate to deleverage and fund Gucci's turnaround. Yet, such a move would require accepting a significant writedown, as Valentino's valuation has plummeted from its 2023 peak.

A Strategic Crossroads

Kering's dilemma reflects a broader recalibration of the luxury sector. With demand polarizing between ultra-luxury (e.g., Hermès) and mass-market accessibility, mid-tier brands like Valentino face existential challenges. The brand's shift to a direct-to-consumer model—now accounting for 70% of sales—has strained margins, while its creative reinvention under Alessandro Michele has yet to translate into consistent sales growth.

For Kering, the calculus is stark:
1. Full Acquisition: A €4–6 billion investment to control a brand with declining margins and operational risks, potentially deepening its debt crisis.
2. Divestiture: A 30–40% loss on its initial investment but a path to liquidity and portfolio simplification.
3. Status Quo: Waiting until 2028 to reassess, risking further erosion of Valentino's value and missing a window to address Kering's debt.

Incoming CEO Luca de Meo, set to assume leadership in September 2025, faces pressure to prioritize Gucci's revival and reduce leverage. A divestiture aligns with this mandate, as evidenced by Kering's 3.5% stock surge following reports of potential sale discussions. However, Mayhoola—Valentino's majority owner—has denied such plans, complicating negotiations.

The Cost of Resetting

While a partial exit would free capital for core brands like Bottega Veneta and Yves Saint Laurent, it would also cede influence over a brand with strong heritage. Valentino's 2024 struggles, including a 20% contraction in wholesale sales, highlight the risks of relying on a single creative vision in a volatile market. For Kering, the opportunity cost of retaining the stake is high: every euro tied to Valentino is a euro not invested in Gucci's digital transformation or supply chain optimization.

Investment Implications

For investors, the path forward hinges on Kering's ability to execute a disciplined divestiture. A partial sale at a discount would signal pragmatism over hubris, aligning with the luxury sector's shift toward financial conservatism. However, the success of this strategy depends on two factors:
1. Valentino's Recovery: A rebound in EBITDA or a pivot to cost discipline could justify a higher exit valuation.
2. De Meo's Agenda: The new CEO's focus on debt reduction and Gucci's revival will determine whether the sale becomes a necessity or a contingency.

A full acquisition remains a high-stakes gamble. While it could unlock synergies (e.g., shared digital platforms), it would also test Kering's balance sheet at a time when liquidity is critical. Given the sector's bifurcation and Kering's debt load, the risks outweigh the rewards.

Conclusion

Kering's potential divestiture of Valentino is a textbook example of a necessary but costly reset. By shedding a sinking asset, the conglomerate can refocus on its core strengths and reduce leverage—a critical step in an industry where margins and brand equity reign supreme. For investors, the key takeaway is clear: Kering's future hinges not on overreaching for growth, but on surgical portfolio management. While the writedown is painful, it may prove to be the price of survival in a luxury market that no longer tolerates excess.

In the end, Kering's decision will be a litmus test for its resilience. If executed wisely, it could mark the beginning of a leaner, more agile Kering—one unshackled from the burdens of a bygone era of luxury excess.