Kering's Q1 Slump Highlights Luxury Sector Challenges as Gucci Struggles
3min read Shares of Kering, the French luxury conglomerate behind Gucci, Yves Saint Laurent, and Bottega Veneta, tumbled 5.4% Thursday morning after reporting a 14% year-on-year decline in first-quarter revenue. The drop to €3.88 billion exceeded analysts’ expectations, underscoring the fragility of the luxury market amid macroeconomic headwinds and brand-specific execution challenges. Kering’s struggles reflect a broader industry slowdown, but the stakes are uniquely high for Gucci, which accounts for nearly half the group’s revenue and two-thirds of its profits.
The Gucci Dilemma
Gucci’s revenue collapsed 25% in the quarter to €1.6 billion, its weakest performance in years. The brand’s ongoing turnaround under new artistic director Demna Gvasalia—best known for his tenure at Balenciaga—has yet to resonate with consumers. While new products like the Softbit handbag line were well-received, their slow rollout (with major launches not expected until late 2025) has left a void. Investors are skeptical: Gucci’s reliance on a designer whose previous work at Balenciaga drew mixed reviews, paired with declining store traffic and a 33% drop in wholesale revenue, has raised doubts about its ability to reclaim its position as a must-have brand.
Regional Weakness and Strategic Trade-offs
Kering’s sales declines were geographically widespread, with Asia-Pacific leading the downturn at 25%, continuing a trend from late 2024. Western Europe and North America each fell 13%, while Japan dipped 11%. These figures highlight the fading allure of European luxury brands in key markets. In China, where tariffs and economic uncertainty have dampened discretionary spending, the drop was particularly acute. Meanwhile, Kering’s strategy to prioritize exclusivity—closing 25 stores in Q1 and reducing wholesale distribution—appears to have backfired. While such moves aim to preserve brand prestige, they may also be shrinking revenue in a market already contracting.
The stock’s 5% plunge on April 26 followed a broader decline in luxury stocks, with Kering underperforming its peers. The group’s valuation now sits at roughly 15 times forward earnings, down from 20 times in early 2024, reflecting investor skepticism about its growth prospects.
A Silver Lining in Bottega Veneta
Amid the gloom, Bottega Veneta’s 4% revenue growth to €405 million offers a rare bright spot. Its strong performance in Western Europe, North America, and the Middle East, driven by cult-favorite products like the Arco bag, suggests that a focus on timeless design and exclusivity can still pay off. This contrasts sharply with Gucci’s struggles, underscoring the importance of brand identity in an increasingly fickle market. However, Bottega’s gains are insufficient to offset Gucci’s decline: together, the two brands represent roughly 60% of Kering’s revenue.
Analysts Sound the Alarm
Investor concern is amplified by the luxury sector’s broader slowdown. Jefferies analysts noted that Kering’s results confirm a “weakening backdrop” since early 2025, with Gucci’s turnaround still unproven. Bernstein warned that recovery hinges on a “heavy lifting” second half, requiring a rebound in Chinese demand—a tall order given Beijing’s muted response to tariff disputes and slowing economic growth. Meanwhile, U.S. luxury spending faces headwinds from potential recession risks, with tariff-induced price hikes eroding demand.
Conclusion: Kering’s Fate Hangs on Gucci’s Turnaround
Kering’s Q1 results reveal a luxury giant caught between macroeconomic headwinds and brand-specific execution challenges. With Gucci’s sales down 25% and its recovery reliant on a designer whose impact remains unproven, the stock’s 5.4% drop reflects investor impatience. While Bottega’s resilience and niche strengths in jewelry (e.g., Pomellato’s Nudo fragrance-driven growth) offer hope, they cannot compensate for Gucci’s decline. The group’s valuation now trades at a discount to peers like LVMH, which reported stronger Q1 results, signaling skepticism about Kering’s ability to navigate this downturn.
For investors, the key question is whether Demna’s vision can reignite Gucci’s desirability before the brand’s customer base erodes further. With Kering’s stock down 18% year-to-date and analysts’ consensus price target now below current levels, the market is pricing in a prolonged slump. Unless Gucci’s new collections deliver a meaningful sales rebound by late 2025—and unless China’s luxury market stabilizes—Kering may remain under pressure, proving that even the most storied luxury brands are not immune to the forces of fashion and finance.
