Valentino SpA is in talks with creditors after a slowdown in demand for luxury goods led to a decline in its results, resulting in the fashion house breaching the terms of its debt, according to people familiar with the matter.

The Italian company, owned by Qatar’s Mayhoola for Investments and Kering SA, is seeking relief on its covenants after its debt-to-earnings ratio surpassed the threshold set in its credit agreement, said the people, who spoke on the condition of anonymity because the deliberations are private.

Valentino has been hurt by a global luxury downturn, fueled by economic uncertainty and rising tariffs, that has led consumers to curb spending on high-end goods. The design house, known for its Rosso Valentino crimson, first breached its covenants in December, the people said. Still, performance has deteriorated significantly, with a decline in earnings during the first half of 2025.

The bulk of Valentino’s debt is comprised of a €530 million ($619 million) financing provided last year by a pool of banks, including Intesa Sanpaolo SpA, Banca Monte dei Paschi di Siena SpA, Banco BPM SpA, and BNP Paribas SA, according to corporate filings seen by Bloomberg. The contract, signed in July 2024, stipulated that Valentino had to maintain a specified net debt-to-earnings ratio, which was to be tested every six months, according to the documents.

Valentino, Mayhoola, and Kering didn’t respond to requests for comment. Intesa, Banca Monte dei Paschi, and Banco BPM declined to comment, while BNP Paribas didn’t respond.

Falling profit

Gucci owner Kering acquired an initial 30% stake in Valentino in 2023 and extended an option to buy the remaining stake from Mayhoola until 2029 this month.

Kering’s investment was viewed as a means to mitigate its exposure to Gucci, which accounts for the majority of its profits and has struggled in recent years.

However, the design house reported a 2.8% drop in revenue to €1.31 billion in 2024, while Ebitda fell 21% to €248 million, according to a Valentino statement in April. The decline was attributed to a reduction in wholesale revenue and a slowdown in European and Chinese markets.

A report by consulting firm Bain & Co. in June projected a contraction in the sector of between 2% and 5% this year.

Including leasing liabilities, Valentino’s net debt stood at €1.08 billion as of Dec. 31.

Valentino has undergone management and design changes over the past 18 months, with Riccardo Bellini joining as chief executive officer at the start of September.