PARIS – Analysts smiled broadly on news that broke overnight of the sale of Kering Beauty to L’Oréal for 4 billion euros.
As previously reported, Kering and L’Oréal jointly said they are forming a long-term strategic partnership in beauty and wellness.
The binding agreement encompasses the acquisition of the House of Creed by L’Oréal and gives the French beauty giant the rights to enter into a 50-year exclusive license for the creation, development and distribution of fragrance and beauty products for Gucci, starting after the expiration in 2028 of Kering’s current license with Coty Inc. for that business.
The partnership will also include a 50-year exclusive license for Bottega Veneta and Balenciaga, which will start at the close of the transaction, which is expected to take place in the first half of 2026.
Balenciaga fragrances
Courtesy
“Overall, this is a defining deal for L’Oréal – their biggest ever – to strengthen its leading position in global fragrances and in niche (beyond its minority stake in Amouage),” wrote Céline Pannuti, head of European staples and beverage research at J.P. Morgan, in a note Monday.
At 12:30 p.m. CET, L’Oréal stock was trading up 0.6 percent to 392.90 euros, while Kering stock had risen 3.6 percent to 320.55 euros.
The news of the deal took some off guard.
“We are surprised by such a U-turn in the group’s in-house beauty strategy, which was aimed at replicating the successful path of Kering eyewear, internalized a decade ago,” wrote Thomas Chauvet, an analyst at Citi.
As previously reported by WWD, industry sources indicated that Kering is looking to shed its eyewear business too.
“That said, we appreciate L’Oréal’s firepower in growing beauty licenses (e.g. YSL successfully licensed by Kering since 2008), particularly Gucci’s long-term potential as a ‘blockbuster’ fragrance brand,” Chauvet continued.
Citi estimates the transaction will reduce Kering’s FY26E EBIT and EPS by a high single-digit and mid-single-digit percentage, respectively, and financial leverage to about 1.5 times net debt and EBITDA from about 2.5 times. (At June 30, Kering net debt amounted to 9.5 billion euros.)
“The latter is a positive considering the group’s elevated financial leverage has been a cause for concern over the past year,” Chauvet wrote.
Barclays estimated that Creed represents the majority – about 93 percent – of Kering Beauty’s sales.
“From a strategic perspective, the reported deal would give L’Oréal a stronger foothold in the luxury segment and cross-brand ties between high-end fashion and beauty, and does help secure strong innovation, which should help drive incremental growth,” wrote Carole Madjo, an analyst at Barclays, in a note.
“Currently, the Luxe division for L’Oréal is about 36 percent of group sales with margins of about 22 percent, thereby making the Kering beauty asset with margins of about 40 percent nearly double L’Oréal’s Luxe margins,” she added.
The deal could have implications for the rest of L’Oréal’s capital allocation, including the stake in Galderma, which currently is 10 percent; whether L’Oréal would buy Nestlé’s stake back if it were for sale, and whether it would acquire a minority stake in Giorgio Armani, recently proposed by the company. L’Oréal’s fragrance and beauty licensing agreement with Armani runs until 2050 currently, according to Madjo.
J.P. Morgan’s Pannuti wrote: “Strategically, we welcome the deal as it reinforces L’Oréal’s inroads in the niche fragrance segment – where it had lagged competitors – and cements the Gucci license, which we see as a prized asset (currently licensed to Coty till 2028).”
She noted L’Oréal had successfully grown YSL Beauty since its acquisition from Kering in 2008 from 600 million euros in sales to close to 3 billion euros today.
“We see strong potential for Creed (300 million euros sales) and Gucci (500 million euros sales) to become billionaire brands,” Pannuti continued. “The timing of [the] transaction when we believe that [the] fragrance market is entering a phase of growth normalization after strong 14 percent per year growth since 2021 could add some uncertainty to which L’Oréal is not immune, though new brands could add momentum to its fragrance portfolio as has been the case this year with Miu Miu and Prada launches.”
