Kering's Luxury Woes Deepen as Gucci Stumbles and Markets Cool

PARIS — Kering’s first-quarter 2025 results underscore a stark reality for the luxury sector: the slowdown isn’t fleeting. The French conglomerate reported a 14% year-over-year decline in revenue to €3.883 billion, driven by a catastrophic 24% sales drop at its crown jewel, Gucci. The performance paints a worrying picture for investors, as the brand’s struggles threaten to overshadow modest gains elsewhere in the portfolio.

The Gucci Dilemma

Gucci’s sales fell to €2.48 billion in the quarter, its worst performance since 2021, with comparable sales down 25% after adjusting for currency and scope changes. The brand’s wholesale segment collapsed by 33%, reflecting weak demand from retailers, while store traffic plummeted across key markets. CEO François-Henri Pinault acknowledged the “difficult start to the year,” but pointed to a potential lifeline: the launch of the Softbit handbag line and the appointment of Demna Gvasalia as creative director, effective July 2025.

The Softbit launch, described as “promising,” could help recapture the attention of younger, trend-driven consumers. However, the brand’s recovery hinges on whether Demna can replicate his success at Balenciaga—now part of Kering’s struggling “Other Houses” segment—while revitalizing Gucci’s core customer base. With Gucci contributing 63% of Kering’s 2024 operating profit, its revival is non-negotiable.

Mixed Performance Across Brands

While Gucci flounders, Bottega Veneta emerged as a bright spot, with sales up 4% to €405 million. The brand’s retail sales rose 7%, fueled by strong performance in Western Europe, North America, and the Middle East. Meanwhile, Yves Saint Laurent (YSL) saw comparable sales drop 9% to €679 million, though its Middle Eastern operations defied the trend.

The “Other Houses” segment, including Balenciaga and Alexander McQueen, declined 11% to €733 million. Balenciaga’s leather goods sales held up, but McQueen’s performance suffered under its new designer, Seán McGirr, and Brioni’s results remained lackluster. The silver lining? Jewelry brands like Boucheron and Qeelin posted “outstanding growth,” with Pomellato’s new Nudo line driving double-digit gains.

Regional Weakness and Macro Challenges

Every major market contributed to the slump. Asia-Pacific sales collapsed 25%, reflecting a sluggish Chinese consumer and lingering trade tensions. Western Europe and North America each fell by 13%, while Japan dropped 11%. Kering cited U.S. tariffs and broader economic uncertainty as key drags, though peers like LVMH (down 3%) and Hermès (up 7.2%) fared far better, underscoring Gucci’s outsized impact on the group.

Strategic Moves and Investor Concerns

Kering is aggressively reshaping its portfolio. A joint venture with Ardian sold Parisian real estate assets for €837 million, while the sale of The Mall Luxury Outlets to Simon Properties netted €350 million. These moves signal a focus on shedding non-core assets, but investors will scrutinize whether the cash infusion can offset Gucci’s declining margins.

The group also closed 25 stores, trimming its retail footprint to 1,788 locations. This consolidation may help streamline costs, but it risks alienating customers in key markets. Meanwhile, Kering’s inclusion in the CDP Triple A List for environmental leadership offers a reputational boost, though it does little to address top-line woes.

Conclusion: A Turnaround Hinges on Gucci’s Next Move

Kering’s Q1 results are a stark reminder that luxury’s golden era is over. With Gucci’s sales down 24% and its recovery contingent on a new creative vision and product launches like the Softbit, investors face a high-risk bet. While Bottega Veneta and jewelry brands show promise, they lack the scale to offset Gucci’s decline.

The numbers are damning: a 14% revenue drop, Asia-Pacific sales down 25%, and Gucci’s dominance of 63% of operating profits. Investors should watch closely for signs of stabilization in the second half of 2025, including Demna’s first collections and the Softbit’s sales traction. Without a strong rebound at Gucci, Kering’s stock (PRTP.PA) could remain under pressure, especially as peers like LVMH outperform.

For now, the verdict is clear: Kering’s future is in Demna’s hands—and the luxury world is waiting to see if he can turn the tide.