By Carol Ryan
Under its old leadership, Kering was carrying too much debt in service of an overly ambitious strategy. A 4-billion-euro check, equivalent to $4.66 billion, from the sale of its beauty division puts those worries to rest.
Shares of the French luxury company rose 4% on Monday after it said it was selling its beauty business, confirming a Wall Street Journal report over the weekend. The move signals that Kering won't seek to match the end-to-end scale of rival LVMH in fragrances and cosmetics, focusing instead on its core luxury brands such as Gucci and Bottega Veneta.
Under the terms of the all-cash deal, L'Oréal will buy perfume brand Creed, which Kering purchased for EUR3.5 billion two years ago. L'Oréal also gets a 50-year license to sell perfume and cosmetics for Kering's brands Bottega Veneta and Balenciaga, as well as the license for Gucci once a pre-existing agreement with Coty expires.
If all of the proceeds from the L'Oréal deal are used to pay down debt, Kering's net borrowings will fall to 1.5 times 2026 earnings before interest, taxes, depreciation and amortization, down from 2.5 times before the deal, based on Citi estimates.
This level is more manageable for Kering, whose core business is performing badly at the moment. Gucci, which typically generates two-thirds of the company's operating profit, is in the doldrums. Kering's share price has halved over the past four years.
The deal shows investors that Kering's new boss Luca de Meo, who comes from the auto industry, is serious about repairing the company's balance sheet and doesn't mind reversing decisions made by Kering's founders, the Pinault family.
De Meo has already deferred plans to buy the remaining 70% of Valentino that Kering doesn't own. It has also been selling stakes in luxury properties in Paris and New York to raise cash.
The plan was for Kering to use Creed as a foundation to build out a fragrance and makeup business, but the sale effectively ends that.
Creed is very profitable and was one of the company's best performers in the second quarter, growing sales 12% compared with the same period of last year. But Kering overpaid for it in 2023. The EUR3.5 billion price tag represented 14 times sales, Bank of America estimates -- a much higher premium than other beauty deals.
What is more, a niche brand like Creed doesn't yet have the infrastructure needed to build a serious global beauty business without heavy investment. The retail network for perfume and makeup is fragmented, so companies need scale to offset the high fixed costs of manufacturing and distribution, said Luca Solca, luxury analyst at Bernstein.
LVMH, the world's largest luxury conglomerate, has a multibillion-dollar Christian Dior beauty business and can afford to run its own beauty operations in-house. It launched a range of $160 Louis Vuitton lipsticks in August and will keep a tight leash on manufacturing and distribution. Brands like Prada that don't have established beauty businesses usually opt for licensing agreements with global giants such as L'Oréal or Estée Lauder.
Luxury companies want exposure to the category. The average selling price for perfume and cosmetics is lower than for clothing or handbags, which helps brands to attract a wide base of consumers. But Kering will get exposure to the business through the royalties it will collect from L'Oréal. Licensing agreements typically pay fees worth 6% to 8% of sales.
Most important is that shedding its beauty ambitions will allow Kering to focus on what would really make it shine: nursing Gucci back to health.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
October 20, 2025 10:54 ET (14:54 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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