Key Morningstar Metrics for Kering
- : EUR 334Fair Value Estimate
- : ★★★★Morningstar Rating
- : NarrowMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
We attended Kering KER‘s capital markets day in Florence, where the management presented its midterm plan for the group’s revival. Goals included more than doubling operating margin from 2025 levels (11% versus high 20s historically) and improving return on capital employed to above 20%.
Why it matters: Gucci’s revival of fortunes is key to Kering’s investment thesis; hence, the plan for that brand was the focus of investors. (We did find potential for jewelry and eyewear interesting, but those are too small to affect the thesis for now.)
- With a creative reset under Demna’s design leadership, Gucci is focused on store optimization (space reduction of 20% with significant reduction in outlets)—rather low-hanging fruit to restore profitability, to a great degree driven by store densities. Other actions include product range simplification, doubling share of iconic handbags, and investing in quality. Marketing investments are needed, especially in China, where the brand’s positioning is weak, and are to be financed through efficiencies elsewhere.
- There are some early signs of improvement (Gucci grew 8% in the Americas in the quarter), but it is hard to see how much time the current management team and current plan have for proof of action. The group will now track brands on a set of desirability metrics, which helps monitor performance with granularity. Both sticking for too long to an action plan that doesn’t work and frequent changes in direction can be damaging for the brand, in our view. By providing the markets with rather vague and long-term performance targets, the management team gains some breathing room to execute.
The bottom line: We are reducing our fair value estimate for narrow-moat Kering to EUR 334 per share from EUR 360 as we incorporate softer 2026 performance and more gradual scaling of profitability thereafter. We still view shares as undervalued and believe the group’s brands are strong enough to deliver high-20s profitability in the long term.
