Gucci owner Kering has agreed to sell its beauty business to L’Oreal in a deal worth 4 billion euros ($4.66 billion). Under the deal, French beauty giant L’Oreal will acquire Kering’s fragrance line Creed, as well as rights to develop fragrance and beauty products under Kering’s fashion labels Gucci, Bottega Veneta and Balenciaga under a 50-year exclusive license.
The sale is a significant step towards reducing Kering’s net debt, which stood at 9.5 billion euros at the end of June, on top of 6 billion euros in long-term lease liabilities, sparking investor concern.
Kering Beauty Business
Kering set up its beauty business in 2023 after acquiring perfume maker Creed for 3.5 billion euros in an effort to diversify and reduce its reliance on its Gucci brand, which accounts for most of its profits. But the group has struggled to ramp up the business, posting a 60 million euro operating loss for the first half of the year.
The company is also battling declining growth at its largest brand Gucci, which was hit hard by slowing demand in the key Chinese market. Gucci’s revenue slump year-on-year in the last reported quarter increased the pressure on Kering to deleverage to avoid further credit downgrades.
Gucci Challenges
Gucci CEO De Meo, who took over as CEO in September, had told shareholders he planned to take some difficult decisions to reduce debt at the group, including rationalising and reorganising where necessary. The company has also postponed a plan to fully acquire Italian fashion brand Valentino, and is aiming to sell stakes in its real estate to raise cash.
L’Oreal, the world’s biggest dedicated cosmetics and beauty player, already produces blockbuster perfumes under the Yves Saint Laurent label after acquiring rights to the brand from Kering for 1.15 billion euros in 2008. The two companies also said they were setting up a joint venture to provide experiences and services for luxury clients.
