Kering strikes 1.7 billion euro deal to acquire 30% share in Valentino amid Gucci's performance concerns

Gucci's Q2 sales disappoint, CEO shakeup underway as Kering seeks revival. (File Photo)

Luxury powerhouse Kering makes a bold acquisition move, announcing plans to buy a substantial 30 percent stake in the esteemed Italian luxury fashion house, Valentino. This deal comes at a time when Kering-owned brand Gucci is struggling to meet performance expectations.

The deal, valued at a staggering 1.7 billion euros, will see Kering taking a significant step forward in its fashion business. The strategic purchase comes hand-in-hand with the release of Kering's Q2 financial results, adding even more buzz to the news.

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As part of this landmark agreement, Kering secures the enticing option to eventually gain full ownership of Valentino, as it holds the right to acquire 100 percent of the fashion house's share capital by the year 2028.

Interestingly, there are hints that Qatar’s Mayhoola, the owner of Valentino, might potentially invest in Kering as well, suggesting a broader tie-up between the two luxury entities.

The acquisition of Valentino and the possibility of further collaboration between Mayhoola and Kering indicate a strategic move by both companies to strengthen their positions in the competitive luxury fashion market. While Kering announced its deal to acquire a 30 percent share in Valentino, concerns have arisen among investors due to Gucci's ongoing underperformance.

Gucci's second-quarter sales rose by just 1 percent on a comparable basis, falling significantly short of the 4.2 percent growth that analysts had anticipated. In response to this underperformance, Kering, which derives two-thirds of its profit from Gucci, has taken action to revive the brand's appeal. Last week, Gucci's CEO, Marco Bizzarri, announced his impending exit, and Jean-Francois Palus, a trusted lieutenant of Kering's CEO Pinault, will serve as the temporary replacement. Kering will initiate the search for a permanent Gucci CEO starting in September.

In contrast to Kering's situation, other luxury companies, including its larger rival LVMH, have experienced double-digit growth. Earlier this week, LVMH reported a remarkable 21 percent increase in sales of its fashion and leather goods division, which includes renowned brands like Dior and Louis Vuitton. The discrepancy in growth rates highlights the challenges Kering is facing in the luxury market and underscores the need for strategic measures to regain momentum and competitiveness.