(News Bulletin 247) – The luxury group announced on Sunday the sale of this division for 4 billion euros, marking the abandonment of its ambitions in perfumes and beauty products. A necessary decision to reduce its balance sheet. L’Oréal, for its part, is strengthening itself in a key segment in terms of growth.

Luce de Meo continues to make strong decisions since her arrival at Kering in mid-September. The former general manager of Renault applies one of the ingredients of the recipe which allowed him to turn the diamond group around: rationalize and refocus.

Which led Kering to make a 180-degree turn on Sunday. The luxury group announced the sale to L’Oréal of its “beauty” division for 4 billion euros, an operation which must be finalized in the first half of next year.

The transaction includes the sale of the Creed perfume group, which Kering bought in October 2023 for 3.5 billion euros, an amount then reported by the Financial Times. L’Oréal will also benefit from a 50-year licensing agreement to develop perfumes and beauty products for several Kering brands, namely Bottega Veneta and Balenciaga, for a period of 50 years. In exchange, L’Oréal will pay royalties to Kering.

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The cosmetics group will also regain the license for Gucci perfumes and beauty products into its stable, once the current license, granted to the American Coty, expires. Which will happen in 2028, according to Bernstein.

L’Oréal already operates in its “luxury” division (perfumes and beauty products) a Kering brand, namely Yves Saint Laurent (YSL).

Furthermore, the two companies have decided to create a 50/50 joint venture to “explore strategic opportunities at the intersection of luxury, well-being and longevity”.

On the Paris Stock Exchange, Kering’s decision is appreciated by the market. The stock climbed another 4% around 10:50 a.m. this Monday, October 20, while L’Oréal shares rose 1%. Since the announcement of the appointment of Luca de Meo as general manager, the luxury group’s shares have gained 86%.

A new “wave” from Luca de Meo

“The new CEO of Kering already seems to be making waves,” writes Deutsche Bank in a note published this Monday.

De facto, the decision to sell Kering’s beauty division to L’Oréal amounts to unraveling a decision taken under the aegis of François Henri-Pinault. Kering had significant ambitions in beauty, a division that the group had recently launched in 2023, with the acquisition of Creed expected to constitute a pillar for developing this activity by immediately reaching a critical size.

The company then launched a line of five Bottega Veneta perfumes in October 2024. In 2024, Kering Beauté achieved a significant turnover of 323 million euros, even though these revenues only represented 2% of the total.

These ambitions did not resist the pragmatism of Luca de Meo. The manager, who will present a strategic plan for Kering in spring 2026, insisted last month on the need to reduce debt even if it means making “not always easy” decisions.

Let us recall that Kering launched Kering Beauté in 2023 at a time when sales of Gucci, the group’s flagship brand (40% of sales for 50% of current operating income) began to plummet. Kering’s revenues fell 2% like-for-like in 2023, before falling 21% in 2024 then 25% in the first half of 2025.

The company’s debt load began to attract the attention of analysts. According to Royal Bank of Canada, net debt is expected to be around 8.5 billion euros at the end of next December (compared to 9.5 billion euros at the end of June), or 2.7 times gross operating profit, a high level and likely to force Kering into different choices (investments, acquisitions, etc.).

“A bitter medicine” for Kering

For Bernstein, “the sale of Kering Beauté at a price similar to that of Creed two years ago is a bitter but necessary remedy.” The financial intermediary explains that this sale marks a new step towards debt reduction, a point which was “a major concern of minority shareholders and Artemis, the indebted holding company of the Pinault family”. UBS also insists that debt was “investors’ biggest worry”.

“Withdrawing from an internally managed beauty business will allow the new CEO, Luca de Meo, to concentrate fully on the turnaround of Gucci,” Bernstein writes again.

“Luca de Meo said that correcting the balance sheet was a priority and a sale of the Beauty division will help significantly reduce the debt burden, even if it could cost an attractive future income stream,” adds Deutsche Bank. The latter considers that the sale price is relatively “attractive” for the luxury group.

The German bank underlines an important point: this strong decision by Luca de Meo shows that the Pinaut family grants him enough power. “This underlines that Luca de Meo has the mandate to make major changes and that he is acting quickly to make things happen,” the establishment says.

“We believe this is a positive step because this decision will provide Kering with the flexibility necessary to support its recovery,” notes Jefferies.

A good move also for L’Oréal?

From L’Oréal’s point of view, the operation has multiple virtues. Bernstein believes that the transaction makes “sense”, even though the price paid turns out to be high. The financial intermediary underlines that L’Oréal will strengthen its perfume portfolio which constitutes “a key growth area”. The operation also eliminates potential doubts about the Yves Saint Laurent license which risked ultimately being reinternalized by Kering if the group had retained Kering Beauté.

“The acquisition would also provide ownership of the Creed brand, which we believe is one of the most promising brands in the global luxury fragrance industry today,” Bernstein wrote.

Oddo BHF also sees “a clear strategic rationale”. In 2016 “Coty competed with L’Oréal for its position as world number one in perfumes,” recalls the broker.

“Since then, L’Oréal has regained leadership thanks to the difficulties of Coty and the targeted acquisitions made by L’Oréal (Mugler, Azzaro, Miu Miu, Prada). With this agreement, L’Oréal clearly becomes the undisputed leader in perfumes in the world,” explains Oddo BHF.

“The other major advantage of this agreement is the possibility of concluding an agreement to take over the Gucci license,” adds the design office.

Oddo acknowledges that the price of 4 billion euros may seem expensive. But “there is no doubt that the funds are invested in L’Oréal’s strategic territory and we favor such capital allocation rather than return to the shareholder (such as share buybacks, Editor’s note) or acquisitions in the adjacent territory, where the execution risk can be high”, continues the broker.

Jefferies also considers this a “positive” decision, with the bank considering that the transaction will have a positive impact of 1% on L’Oréal’s earnings per share. The establishment estimates that the operation will increase the cosmetics group’s revenues by 800 million euros in a full year, counting the approximately 470 million euros in sales of Gucci perfumes and beauty products currently managed by Coty.

Jefferies also estimates Kering Beauté’s Ebitda at 300 million euros and operating profit at 280 million euros.