Rising Global Wealth And E-commerce Will Spark Luxury Renaissance

Key Takeaways

• Rapid innovation, operational transformation, and a potential strategic reset could restore sales growth, boost profitability, and lift investor confidence beyond current expectations.
  
• Strong positioning among affluent, younger consumers and early investments in digital and ESG initiatives are set to drive long-term brand strength and sustained revenue expansion.
  
• Weakening brand performance, overreliance on Gucci, operational inefficiencies, and heightened macroeconomic risks threaten margin stability, earnings resilience, and long-term growth prospects.

Catalysts

Manages the development of a collection of renowned houses in fashion, leather goods, and jewelry in the Asia Pacific, Western Europe, North America, Japan, and internationally.

• Analyst consensus expects Gucci's brand elevation and product relaunches to drive margin improvement, but the pace and scope of Gucci's creative refresh-paired with an accelerated roll-out of new collections and rapid innovation cycles-could deliver a much faster rebound in sales velocity and restore double-digit revenue growth ahead of expectations, meaning operating margins could snap back quicker than currently modeled.
  
• While analysts broadly agree that rightsizing store networks and increasing operational efficiency are margin tailwinds, the depth of Kering's cost transformation-including structural, permanent reductions in OpEx and headcount, reinforced by supply chain internalization and digitalization-could lead to a step-change in profitability, structurally lifting both net margins and free cash flow generation to levels above historical averages.
  
• The anticipated arrival of Luca de Meo as CEO introduces significant change potential not currently reflected in market expectations; a likely strategic reset by a proven brand-builder could drive bold repositioning, M&A synergies, and renewed investor confidence, paving the way for stronger long-term earnings growth and multiple expansion.
  
• Kering's exposure to rising global wealth-particularly among younger, affluent demographics in Asia-Pacific and the Middle East-positions its houses to disproportionately benefit from secular demand growth, with under-monetized regional clusters offering capacity for sustained top-line acceleration and geographic revenue diversification as outbound Chinese and local client spending recovers.
  
• Early investments in luxury e-commerce, digitally-driven personalization, and ESG initiatives tightly aligned with evolving consumer values are set to give Kering a meaningful edge in both pricing power and customer loyalty, with enhanced direct-to-consumer penetration and sustainable product innovation directly supporting higher gross margin and recurring earnings growth.

Kering Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Kering compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Kering's revenue will grow by 6.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.6% today to 9.6% in 3 years time.
• The bullish analysts expect earnings to reach €1.8 billion (and earnings per share of €13.61) by about September 2028, up from €729.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 27.9x on those 2028 earnings, down from 39.3x today. This future PE is greater than the current PE for the GB Luxury industry at 22.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.78%, as per the Simply Wall St company report.

Kering Future Earnings Per Share Growth

Risks

• Ongoing declines in revenue across key brands and geographies, exemplified by a 16% year-on-year drop in first half revenue and weakness in Asia Pacific and Western Europe, indicate long-term vulnerability to shifting consumer preferences and persistently low tourist traffic, which could restrain top-line growth.
  
• Overdependence on Gucci, which experienced a 25% comparable revenue decrease and continues to drive group volatility, presents a risk that any further brand missteps or slower-than-anticipated recovery could significantly weaken group earnings and margin stability.
  
• Persistent underperformance and operating losses in other portfolio brands like Balenciaga and Alexander McQueen, with recurring losses and restructuring efforts yet to show material results, may result in ongoing dilution of group operating margins and reduced earnings power.
  
• Heightened geopolitical uncertainty, tariff risks, and region-specific macroeconomic headwinds-including in China and the US-expose Kering to fluctuating demand, cost inflation, and FX volatility, all of which could continue to drag on net revenue and compress gross margins.
  
• The company's need to reduce costs aggressively, including rightsizing its store network and workforce reductions, along with pressured margins and elevated net financial debt, signals ongoing margin contraction concerns, limits reinvestment capacity, and raises risks to long-term free cash flow and earnings resilience.

Valuation

• The assumed bullish price target for Kering is €313.67, which represents two standard deviations above the consensus price target of €205.0. This valuation is based on what can be assumed as the expectations of Kering's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €360.0, and the most bearish reporting a price target of just €135.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €18.9 billion, earnings will come to €1.8 billion, and it would be trading on a PE ratio of 27.9x, assuming you use a discount rate of 9.8%.
• Given the current share price of €233.5, the bullish analyst price target of €313.67 is 25.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.