Gucci owner Kering announced on Sunday it has agreed to sell its beauty business to French cosmetics giant L'Oréal for 4 billion euros ($4.66 billion), as new CEO Luca de Meo takes steps to reduce the luxury group's high debt and refocus on its core fashion business.
Under the deal, L'Oréal will acquire the Creed perfume brand, as well as the rights to develop perfume and beauty products under Kering's fashion brands: Gucci, Bottega Veneta and Balenciaga, through an exclusive 50-year license. The current license for Gucci perfume is held by Coty, and the new deal will take effect after the existing one expires — which analysts expect to happen in 2028.
This sale constitutes an important step to reduce Kering's net debt, which at the end of June reached 9.5 billion euros, not including 6 billion euros in long-term lease obligations — an issue that has worried investors.
The company has struggled to grow its biggest brand, Gucci, which has been hit hard by falling demand in the key Chinese market.
Just two months after taking over, de Meo is reversing one of the biggest strategic shifts made by his predecessor Francois-Henri Pinault, whose family controls the group. Kering created the beauty unit in 2023, after buying perfume maker Creed for 3.5 billion euros, with the aim of diversifying and reducing its reliance on the Gucci brand, which provides the bulk of the group's profits. However, the beauty unit has struggled to grow, posting an operating loss of 60 million euros in the first half of the year.
Meanwhile, Gucci revenue fell 25% year-on-year in the last reported quarter, increasing pressure on Kering to reduce debt and avoid further credit rating downgrades.
De Meo, who took over as CEO in September, had warned shareholders that he would make some difficult decisions to reduce the group's debt, including rationalization and reorganization, when necessary.
L'Oréal, as the world's largest cosmetics and beauty company, already produces popular perfumes under the Yves Saint Laurent brand, after purchasing the rights to this brand from Kering for 1.15 billion euros in 2008.
The deal to buy Kering's beauty unit would be the largest ever made by L'Oréal — bigger than the $2.5 billion acquisition of Australian brand Aesop in 2023.
L'Oréal, which has said it has "many" potential acquisitions under consideration this year, has also been contacted by representatives of the Armani Group, Reuters reported this month, after the beauty conglomerate was named in the will of the late designer Giorgio Armani as one of the preferred buyers for a stake in his fashion house.
