Kering SA agreed to sell its beauty division to L’Oreal SA in a EUR4 billion ($6.03 billion) deal, with new Chief Executive Officer Luca de Meo changing course in a bid to turn around the French luxury giant’s fortunes.
The transaction includes the sale of perfume maker House of Creed, which Kering bought only two years ago. The two companies also said they’ll work together to create, develop and distribute fragrance and beauty products for Kering’s Gucci, Bottega Veneta and Balenciaga brands.
The move reverses the luxury-goods company’s previous plan to bulk up and take direct control of its beauty and cosmetics segment and push into the high-end fragrance segment where rivals Hermes International and LVMH Moet Hennessy Louis Vuitton SE have performed strongly.
Kering will receive EUR4 billion in cash at closing of the deal, which is expected in the first half of next year, as well as royalties from L’Oreal.
Shares of Kering rose as much as 5.5% in early trading Monday. The stock has risen 87% since De Meo was named CEO on June 16. L’Oreal increased 1.4%, bringing its gain to 9% over the past 12 months.
While Kering’s “U-turn” is a surprise, “we appreciate L’Oreal’s firepower in growing beauty licenses,” said Thomas Chauvet, an analyst at Citi.
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Kering’s tieup with L’Oreal is the first significant strategic move under De Meo, who officially stepped into the role in September, taking over from Francois-Henri Pinault after a series of profit warnings at the luxury group founded by his father Francois Pinault. The Pinaults remain the majority shareholders of Kering with a 42% stake and 59% of voting rights.
While De Meo is only expected to unveil his strategic vision next spring, he is moving quickly to try to revamp the company’s operations. Since taking over, he has visited stores and manufacturing plants, and met with the business and creative teams.
Kering is confronting a slump in Chinese demand and the threat of higher US tariffs. The group’s high debt burden has also sparked investor anxiety and De Meo has already told shareholders his top priorities will include slashing debt and costs. Kering’s net debt rose 24% to EUR10.5 billion at the end of last year.
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L’Oreal is the world’s biggest dedicated cosmetics and beauty group and will gain 50-year licences to Kering’s perfume brands. The license for Gucci will take effect after a current deal with rival perfume and beauty group Coty Inc. expires, the companies said.
L’Oreal already owned the license for Kering’s Yves Saint Laurent brand and manufactures the popular Libre perfume. In 2023, when Pinault was seeking to expand the beauty arm, L’Oreal CEO Nicolas Hieronimus said there was no risk that its license would be taken back by Kering. Yves Saint Laurent is Kering’s second-biggest fashion brand after Gucci.
Strategy Shift
The deal marks “a meaningful strategy shift in terms of Kering’s ambitions in the beauty segment,” said Piral Dadhania, an analyst at RBC Capital Markets. “A move back to beauty licensing would be less capital intensive, less operationally geared and arguably higher margin, albeit with having to share economics with the license partner in our view.”
The deal will help reduce Kering’s debt load and is “another proof point that new CEO Luca De Meo is looking at all aspects of the business,” Dadhania said.
