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Investing.com -- Kering shares jumped around 5% Monday after the Gucci owner announced it has agreed to sell its beauty division to L’Oréal for €4 billion, marking a decisive shift just months into Luca de Meo’s tenure as chief executive.
The deal covers high-end fragrance house Creed, acquired by Kering in 2023, and grants L’Oréal a 50-year exclusive licence to develop fragrance and beauty products for Gucci, Bottega Veneta and Balenciaga once existing contracts, including Gucci’s agreement with Coty due to expire in 2028, come to an end.
It effectively unwinds one of the most high-profile diversification moves made under former CEO Francois-Henri Pinault, who set up Kering Beaute last year in an attempt to broaden the group beyond fashion and capture more value in beauty, a category long dominated by licensing partnerships.
The transaction comes at a moment of rising pressure on Kering’s balance sheet, with net debt standing at €9.5 billion at the end of June, in addition to roughly €6 billion in lease obligations.
Investor concern around leverage has increased as growth at Gucci, which generates more than half of group profits, has slowed sharply, particularly in China where luxury demand has weakened.
Creed’s integration and the early rollout of internally managed beauty lines such as Bottega Veneta perfume failed to provide the uplift initially expected, with the division still lossmaking in the first half of the year.
By opting to sell rather than continue scaling the platform, de Meo is signalling a return to a more streamlined model focused squarely on fashion and cash generation.
The deal is also transformational for L’Oreal, which will take direct control of Creed and eventually the Gucci fragrance franchise, one of the most commercially attractive names in global beauty.
It would be the largest acquisition in L’Oreal’s history, surpassing its $2.5 billion takeover of Aesop in 2023, and reinforces its push deeper into luxury fragrances, a fast-growing segment within its portfolio.
The group will also enter a joint venture with Kering to explore wellness and longevity, offering a secondary strategic link between the two French giants beyond licensing.
UBS analysts said the reported valuation of around €4 billion “would be a small positive for
Kering, strengthening its balance sheet, which has been a concern for many investors
this year.”
They said deleveraging has become a central focus for investors given weak operational performance and the postponed Valentino transaction, adding that the sale “may outweigh the likely implied impairment on the acquisition” of Creed, which Kering bought for nearly the same price two years ago.
Separately, Bernstein analysts called the move “bitter but necessary medicine,” arguing that stepping back from in-house beauty “will allow new CEO Luca de Meo to focus his full attention on the Gucci turnaround.”
The team noted that Creed is one of the most exciting assets in luxury fragrance and said the sale price looked “punchy on the face of it,” but made clear that shareholder pressure had shifted priority firmly towards balance sheet repair over category expansion.
“Fixing the balance sheet is already largely in the share price,” they added, cautioning that investors may now look for evidence of execution rather than optionality.
JPMorgan said the sale marks “the first material act” by de Meo and represents a “sharp change in strategy,” raising the possibility of further disposals of smaller brands that remain margin dilutive.
The bank said the market could welcome Kering “streamlining complexity at Group level and easing balance sheet constraints,” though it warned that giving up long-term economics in beauty would “reset the long-term ambitions of the group” and could reduce upside if Gucci’s fragrance segment outperforms over time.