By Tassilo Hummel
FLORENCE, Italy, April 16 (Reuters) - Kering CEO Luca de Meo pledged to more than double the luxury group's operating profit margin and boost the appeal of its flagship brand Gucci as he sought to reassure investors unnerved by economic uncertainty and war in the Middle East.
In a more than three-hour presentation to investors and analysts in Gucci's birthplace Florence, the former Renault boss said he would more than double Kering's profit margins, shrink and improve the company's
store network and expand its jewellery sector.
Kering shares were down on the Paris stock market following the presentation, trading around 2.5% lower at 1020 GMT.
Gucci, which accounted for around 60% of Kering's profit last year, was Kering's cash machine until 2023 when a shift in tastes sapped its performance and that of the entire group.
"Our business has become structurally unbalanced," de Meo said, adding that the group, and Gucci in particular, had relied too heavily on volatile fashion cycles.
As de Meo spoke, Kering's controlling shareholder and chair Francois-Henri Pinault watched from the front row of the audience. Pinault stepped down amid flagging sales and high debt last year to make way for de Meo.
KERING'S RETURNS HAVE LAGGED THE WIDER LUXURY SECTOR
Kering shares have risen by more than 40% since de Meo's appointment was announced last June. They are down 28% since an October high, largely in line with the wider luxury industry.
Operating returns, however, still lag.
Doubling them from 11% last year, would bring the company more in line with industry peers.
In slides detailing the strategic plan, Kering also said it would cut inventory - a drag on its profit and loss - by 1 billion euros ($1.18 billion) within 12 months.
"The release remains light on near-term quantified guidance, with no explicit revenue or margin targets for full year 2026 or 2027," JPMorgan analyst Chiara Battistini wrote in a note after Kering outlined the revamp plan in a press release
UNMISTAKABLE GUCCI AND CLIENT-OBSESSION
Gucci, which de Meo ranked alongside Ferrari and chocolate spread Nutella as one of Italy's icons, is being revamped under designer Demna, who took over last year after the styles of predecessor Sabato de Sarno failed to gain traction.
De Meo said he aimed to make Gucci's styles unmistakable again while transforming the brand into a "fully client-obsessed organisation" with fewer stores but a better understanding of its clients across regions.
He said he would more than double the share of high-margin leather goods in the revenue mix - or 1 billion euros of additional sales - by 2030.
The tense geopolitical context is likely to complicate de Meo's mission.
Kering, as well as its rivals LVMH and Hermes, said this week that the escalation of the Middle Eastern conflict that started with U.S.-Israeli airstrikes on Iran at the end of February cut luxury sales in the Gulf region.
It has also impacted their business indirectly through reduced travel activity.
"A turnaround story is easier to execute when the macro environment is booming," said Soliane Varlet, equity portfolio manager at Mirova.
She added that inflation hit middle-class shoppers more than the ultra-rich, which could complicate things for Kering, whose brands mostly target aspirational shoppers.
AIMS TO INCREASE THE SHARE OF JEWELLERY AND EYEWEAR
To try to make Kering resilient, de Meo is seeking to increase jewellery and eyewear sales, which so far only account for a small fraction of overall returns.
Kering's eyewear division, which also produces glasses for Richemont brands including Cartier, will make luxury smart glasses together with tech giant Google, de Meo said, confirming a previously announced ambition.
As for acquisitions, the French conglomerate said it would take a "highly selective" approach, with a view to securing product quality and supply chains. The company, in a separate statement, said it would acquire a minority stake in fast-growing Chinese fashion brand Icicle.
($1 = 0.8480 euros)
(Reporting by Tassilo Hummel; Editing by Makini Brice, Elaine Hardcastle and Barbara Lewis)
