Kering outlook revised to stable on L’Oreal beauty deal

Investing.com -- S&P Global Ratings revised its outlook on Kering S.A. to stable from negative while affirming its ’BBB+’ rating, citing improved deleveraging prospects following the company’s binding agreement with L’Oreal.

The rating agency highlighted that the €4 billion cash transaction, announced on October 19, will substantially improve Kering ’s financial position. Under the agreement, Kering will sell its beauty business, including House of Creed, to L’Oreal and grant 50-year exclusive licenses for beauty and fragrance products for Bottega Veneta and Balenciaga. The deal also includes rights for a 50-year exclusive license for Gucci products after the current Coty license expires.

S&P expects Kering’s debt-to-EBITDA ratio to improve from a peak of 4.0x-4.5x at the end of 2025 to approximately 3.0x in 2026, compared to previous projections that saw leverage remaining above 3.5x until 2027.

Kering’s third-quarter results showed signs of improvement with revenue declining 10% on a reported basis and 5% on a comparable basis, a significant improvement from the 15% decline in the second quarter. The company saw better performance in Western Europe and North America, driven by local demand, while Asia-Pacific showed moderation in sales decline.

Gucci demonstrated notable sequential improvement with its comparable sales decline narrowing to 14% in the third quarter from 25% in the first half of 2025. Bottega Veneta continued positive momentum with approximately 3% comparable growth, while other houses collectively returned to 1% growth.

S&P forecasts Kering’s organic revenue growth of 3%-4% from 2026 onwards, supported by macroeconomic improvements and turnaround initiatives. The rating agency also expects EBITDA margins to improve from 24%-25% in 2025 to 26%-27% in 2026-2027.

The company has already realized net cash proceeds of about €1.3 billion during first-half 2025 from real estate sales in Paris and Tokyo, with plans to dispose of additional assets worth approximately €1.7 billion.

S&P indicated it could lower Kering’s rating if debt-to-EBITDA remains above 3.5x long-term, while an upgrade would require sustained leverage below 2.5x alongside positive organic growth and successful execution of the Gucci turnaround strategy.

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