Kering Earnings Call: Painful Reset, Early Turnaround Signs

Kering Sa Unsponsored ADR ((PPRUY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Kering’s latest earnings call painted a picture of a group in the midst of a painful reset but not a stalled one. Management acknowledged a tough 2025 marked by double‑digit revenue declines and sharply lower EBIT, yet stressed cost discipline, balance‑sheet repair, and early signs of commercial traction, especially in select houses and jewelry, as foundations for a gradual turnaround.

Cost discipline underpins strategic reinvestment

Kering delivered €925 million of cost savings in 2025, trimming its operating expense base by 9% versus 2024 and surpassing €1 billion in cumulative savings over two years. Management emphasized that these efficiencies are not just defensive but free up resources to reinvest in creativity, product, and brand‑building initiatives across the portfolio.

Retail footprint sharply rationalized

The group continued to shrink and upgrade its store network, closing a net 75 locations in 2025 to end the year with 1,719 stores worldwide. For 2026, Kering plans at least 100 additional net closures and a mid‑term goal of roughly 20% fewer units than in 2025, aiming for higher productivity and cleaner brand presentation.

Inventory and CapEx kept on a tight leash

Inventories were cut by 8% at year‑end 2025, with management signaling further reductions in 2026 to keep stock aligned with softer demand. CapEx excluding real estate fell almost 30% to €0.8 billion, representing a 5.4% CapEx‑to‑sales ratio, reflecting more selective investment while preserving flexibility for future growth.

Cash generation supports rapid deleveraging

Free cash flow reached €4.4 billion including real‑estate transactions and €2.3 billion excluding them, still positive despite earnings pressure. Net financial debt fell by €2.5 billion to €8.0 billion, and management expects leverage to move toward roughly 1.0–1.5 times after proceeds from the Kering Beauté sale further strengthen the balance sheet.

Sequential sales momentum offers a glimmer of relief

Group revenue excluding Kering Beauté dropped 10% on a comparable basis to €14.7 billion in 2025, but trends improved through the year. Fourth‑quarter sales were down just 3% on a comparable basis, with higher average unit retail and better conversion rates pointing to early benefits from product and clienteling efforts.

Select brands and eyewear cushion the downturn

Bottega Veneta posted 3% comparable growth to €1.7 billion and a recurring margin of 15.6%, while Saint Laurent generated €2.6 billion in sales, down 6% comparably but still delivered a robust 20% margin. Kering Eyewear also advanced, with revenue up 3% comparably to around €1.6 billion and a 15.8% operating margin, underscoring the value of diversified profit pools.

Jewelry shines and verticalization gains pace

Jewelry remained a bright spot, with Boucheron growing at a mid‑20s percent comparable rate in Q4 and Qeelin advancing in the mid‑teens. The progressive acquisition of manufacturer Raselli Franco is designed to deepen industrial capabilities and scale, signaling Kering’s intent to lean harder into jewelry as a high‑growth, resilient category.

Partnerships and ESG credentials bolster long‑term positioning

Management highlighted a new partnership with L’Oréal aimed at accelerating Kering’s beauty ambitions and expanding into wellness and longevity. The group also retained a CDP Triple A rating for the third consecutive year, reinforcing sustainability as a strategic differentiator with investors and consumers.

Revenue under pressure across key geographies

Despite pockets of strength, Kering’s top line weakened meaningfully, with full‑year revenue excluding beauty down 10% on a comparable basis and 13% on a reported basis. Asia Pacific and Japan were particularly soft, each seeing retail sales fall 16% over the year, weighing on group growth and mix.

Profitability squeezed as EBIT drops sharply

Recurring operating income fell 33% to €1.6 billion, as lower sales and mix pressure drove earnings down faster than revenue. The EBIT margin contracted 340 basis points to 11.1% for the year, though the second half saw a more limited 120‑basis‑point dilution, suggesting that cost actions are gradually gaining traction.

Gucci remains the critical drag

Gucci’s performance was notably weak, with full‑year revenue sliding to €6.0 billion, down 19% on a comparable basis and 22% reported, as both retail and wholesale contracted sharply. Recurring operating income was €966 million with a 16.1% margin, but the brand’s scale means it remains the main headwind to the group’s sales and sentiment despite some sequential improvement in Q4.

Wholesale and e‑commerce rationalization weighs on growth

Wholesale revenue for the luxury houses fell 19% on a comparable basis in 2025, reflecting a deliberate move to tighten distribution and protect brand equity. E‑commerce sales also declined 12% on a comparable basis and represented 11% of retail, highlighting both market softness and the impact of Kering’s channel reshaping.

Loss‑making houses undergo deep restructuring

The Other Houses division reported a recurring operating loss of €112 million, with Alexander McQueen singled out for substantial losses and a major restructuring, including 21 store closures. Balenciaga also faced a challenging year but showed some improvement in Q4, hinting that brand repair efforts may be starting to gain traction.

Heavy one‑offs distort the bottom line

Nonrecurring items totaled a negative €584 million, driven by capital losses on certain real‑estate deals, asset impairments, restructuring costs, regulatory penalties, and reclassifications linked to assets held for sale. These charges further depressed reported earnings, masking some of the underlying operational progress.

Operating cash and tax headwinds persist

Net cash from operating activities dropped 34% to €3.1 billion, and free cash flow excluding real estate fell 35% to €2.3 billion, reflecting lower profitability and less help from working capital. The effective tax rate on recurring income jumped to 36%, above the group’s normative range, due to loss utilization issues and one‑off items, while gross margin was hit by higher gold costs and adverse regional mix.

Guidance signals a cautious but upward 2026 trajectory

Management framed 2025 as a reset year and guided to a return to growth and gradual margin improvement in 2026, supported by ongoing inventory reductions, a further 100‑plus net store closures, and tightly prioritized CapEx. Proceeds from the L’Oréal transaction are expected to push leverage toward 1.0–1.5 times, while the tax rate should ease toward 33% in 2026 and trend back to the 27–28% range over the next few years, underpinned by a disciplined capital‑return policy.

Kering’s earnings call underscored a story of transition rather than capitulation, with significant short‑term pain offset by clear strategic moves and balance‑sheet repair. For investors, the near term remains challenging, but improving Q4 trends, resilient performance at Bottega, Saint Laurent, eyewear and jewelry, and aggressive cost and portfolio actions will be key markers of whether this turnaround can translate into durable value creation.