The Gucci owner, Kering, is selling its beauty division to L’Oréal for €4bn (£3.5bn), as its new chief executive, Luca de Meo, seeks to turn around the French luxury company.
The deal will give the French beauty group L’Oréal Kering’s fragrance line Creed, which was founded in 1760. The deal also includes rights to develop fragrance and beauty products under Kering’s fashion labels Gucci, Bottega Veneta and Balenciaga under a 50-year exclusive licence.
In a significant shift in strategy, de Meo is trying to reduce Kering’s debt burden and refocus on its core fashion business.
The new 50-year deal with L’Oréal will start once Kering’s current deal with Coty for Gucci fragrances expires in 2028.
The sale will help reduce Kering’s net debt, which totalled €9.5bn at the end of June, on top of €6bn of long-term lease liabilities, easing concerns among investors.
It is de Meo’s first big move since he took the helm less than two months ago, as he pivots away from the strategy of his predecessor François-Henri Pinault, whose family controls the group.
Kering set up its beauty business in 2023 after acquiring the perfume maker Creed for €3.5bn to reduce its reliance on its Gucci brand, which makes up most of its profits. But the luxury group has struggled to ramp up the business, posting a €60m operating loss for the first half of the year.
The company has also been battling declining growth at its largest brand, Gucci, as demand from the key Chinese market has slowed sharply in recent years. Gucci’s revenues fell by 25% in the latest quarter.
The Italian fashion house underwent a shake-up under new management and creative director, Sabato de Sarno, but he was abruptly let go just two weeks before Milan fashion week in February. He has been replaced by Demna, who left his post at Balenciaga in the summer and last month presented his first Gucci collection, ditching the traditional catwalk format for a film by Spike Jonze.
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Analysts at Jefferies estimate the beauty division’s potential sales at €800m and an operating profit of €280m, assuming a licence fee of 10% on Gucci sales. “This is likely to be taken positively for L’Oréal, another ‘buy and roll’ transaction in what is still a ‘hot’ fragrance category,” they said.
Analysts at Bernstein said: “We believe selling Kering Beauté at around the same price paid for Creed two years ago is a bitter but necessary medicine.”
The Kering share price increased by 5% in early trading in Paris, while L’Oréal rose nearly 1%.