French luxury conglomerate Kering is navigating its most severe profitability crisis in a decade. Although the sales decline in the fourth quarter was slightly better than anticipated, its flagship brand, Gucci, has now reported ten consecutive quarters of revenue contraction. The group's annual operating profit has plummeted by more than two-thirds compared to three years ago, with its profit margin halving to 11%, further widening the performance gap with rival LVMH.

Kering announced fourth-quarter sales of €3.9 billion on Tuesday, representing a 3% year-on-year decline on a comparable basis, which was better than the 5% drop analysts had forecast. Revenue for the Gucci brand fell by 10%, slightly outperforming market expectations of a 12% decrease, yet marking the tenth straight quarter of declining sales for the brand.

Chief Financial Officer Armelle Poulou noted that Gucci showed signs of improvement towards the end of last year in "almost all regions," supported by newly launched products and handbag sales. She emphasized that "2025 does not reflect Kering's true potential or the strength of our brands, but it has laid the groundwork for the future recovery."

This performance underscores the severe challenges facing Kering. Although the group's share price has risen approximately 50% since new CEO Luca de Meo took over in June of last year, investors are still awaiting specific details of the recovery plan.

The narrowing rate of decline in the fourth quarter's €3.9 billion sales fails to mask underlying weakness. Revenue for the Italian flagship brand Gucci, which contributes the bulk of the group's profit, fell by 10%, continuing a trend of persistent softness since 2022.

CFO Poulou indicated that Gucci saw some improvement in almost all regions by the end of last year, thanks to new product launches and handbag sales. However, these positive signals have not yet translated into a substantive reversal of performance.

Facing an uncertain business outlook, Kering further reduced its store network, with a net closure of 75 boutiques in the fourth quarter. Poulou stated that plans are in place to close additional stores. The group's portfolio also includes brands such as Balenciaga, Bottega Veneta, and Yves Saint Laurent.

Gucci's troubles began in 2022. Following the decline in popularity of former star designer Alessandro Michele's maximalist aesthetic, the brand's sales have remained persistently weak, leading to ten consecutive quarters of revenue decline. This situation has subjected Kering to intense investor scrutiny over its high debt and declining profitability.

Kering's operating free cash flow, excluding one-time income from property sales, fell by 35% last year to €2.3 billion. This figure reflects a significant deterioration in the group's cash generation capabilities.

Chiara Battistini, an analyst at J.P. Morgan, stated, "For Kering, the key lies in restoring broad-based appeal globally." This points to the core issue: how to win back consumer favor.

The scale of Kering's profitability decline is alarming. The group's annual operating profit was €1.63 billion, less than one-third of its 2022 level. The group's overall operating margin collapsed from 28% three years ago to 11%, while Gucci's brand margin plummeted from 36% to 16%.

This performance stands in stark contrast to that of its competitors. LVMH achieved a 22% margin last year despite a broader slowdown in the luxury sector, with its Fashion & Leather Goods division—home to Louis Vuitton and Dior—reaching a 35% margin. The gap between Kering and the industry leader continues to widen.

These figures highlight the severe challenges confronting Kering. Even with the share price rising about 50% since CEO de Meo's appointment, the group requires fundamental operational improvements to catch up with its rivals.

Despite the current严峻形势, Kering's management maintains a cautiously optimistic outlook for a future recovery. CFO Poulou emphasized that 2025 has laid the foundation for the group's recovery, suggesting that a genuine turnaround may not materialize until 2026.

Market confidence in Kering has recovered somewhat since Luca de Meo was appointed CEO in June, with the stock rebounding around 50%. However, investors are still awaiting details of de Meo's specific revival plan to assess whether the group can genuinely escape its current predicament.

The fourth-quarter results, which were slightly better than expected, offer a glimmer of hope, but they are far from sufficient proof that the group has emerged from its trough. Whether Kering can achieve a true turnaround in 2026 will depend on its ability to successfully revitalize brand appeal, improve operational efficiency, and re-establish its position within the fiercely competitive luxury market.