Back to Basics: L’Oreal Acquires Kering’s Beauty Division
It’s official! L’Oreal has agreed to acquire Kering’s beauty division for USD 4.6 billion. The deal was announced just a couple of days ago and is expected to close mid-2026 for the most part. The notable exception being Gucci Beauty which is currently being licensed to Coty, and who will most likely deprioritize the brand for the next couple of years when the license expires in 2028.
Challenging Times for Kering
By offloading its Beauty Business, Kering not only gets a much-needed cash infusion to improve its overleveraged position but also frees them to recenter their strategy around fashion. In 2024, Kering’s revenue fell 12% year-on-year to USD 18.6 billion, mostly driven by soft sales at Gucci and Balenciaga. After Alessandro Michele’s departure from Gucci, Sabato De Sarno took the helm at the cult brand, but his efforts mostly floundered, resulting in him leaving his post as the brand’s creative director earlier this year. Poor sales coupled with net debt levels of more than USD 10 billion, prompted Kering to reset their strategy and hire Luca de Meo, a former Renault executive, as their new CEO.
Gucci Beauty Pavillion on TMall
Citibank estimates that the sale of Kering Beaute to L’Oreal will reduce Kering’s full-year earnings before income taxes (EBIT) by less than 10%, and cut its net debt-to-EBITDA ratio from 2.5 to 1.5. In layman’s terms, the deal could potentially free USD 3.8 billion in “borrowing capacity and cash flexibility” which Kering could use to refurbish existing stores and further invest in marketing, without taking on any new debt. On the day the announcement was made, Kering and L’Oreal shares rose by 3.6% to USD 346, and 0.6% to USD 424, respectively. The sale is seen as part of the luxury group’s overhaul to get back to profitability, even if it means selling an in-house division created just two years ago, after acquiring fragrance house Creed for USD 3.8 billion.
A Strategic Acquisition for L’Oreal
The acquisition transfers ownership of fragrance house Creed and gives L’Oreal exclusive licenses for Gucci, Bottega Venta, and Balenciaga fragrances and cosmetics for the next 50 years. Investment bank, JP Morgan, called the acquisition a strategic move to strengthen their luxury fragrance portfolio, especially by securing the Gucci license, which the bank qualifies as a long-term “blockbuster license.” Fragrances already represent 13.7% of L’Oreal sales, and HSBC estimates that the acquisition grow category sales by an additional 6%.
At the moment, however, Creed generates the most sales for Kering, with sales totaling an estimate of USD 400 million, whereas sales for Balenciaga and Bottega Veneta are negligible.
The Balenciaga Fragrance Collection
Barclays estimates that Creed represents over 93% of Kering’s beauty division sales, and with margins close to 40%, Creed almost doubles the average margins for L’Oreal’s Luxe division, which includes Lancôme, YSL Beauty, and Giorgio Armani, to name a few. Currently, the division represents 36% of annual turnover, margins, on average, hover around 22%.
Moving forward, L’Oreal will have to focus on widening distribution for all of the Kering brands, and most importantly, will have to rebuild the Gucci brand once Coty’s license expires in 2028. Barclays estimates that Coty’s earnings (EBITDA) in 2028 are likely to take a 12-14% hit following the loss of the Gucci license.
An Expensive Acquisition
Kering acquired Creed in 2023 for USD 3.8 billion, and whilst the fragrance house was sought after by many, The Business of Fashion posits that Kering overpaid to bring the brand in-house. The acquisition was not just key in launching the Kering Beaute division, but also a cornerstone upon which Kering’s expansion and diversification strategy was initially based. Creed’s expertise was most likely essential in developing Bottega Veneta and Balenciaga fragrances, but for a market used to paying USD 100-300 for perfume, Bottega’s inaugural fragrance collection debuted at an eye-watering USD 450 a bottle.
The Bottega Venetta Fragrance Collection
Industry sources have suggested that Kering’s in-house eyewear division could also be up for grabs; however, unlike Kering Beaute, the division was created over a decade ago and is very much successful, making any further divestment unlikely.
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