Gucci is losing its beauty department. CEO De Meo makes a billion-dollar decision after just one month

Just a month after taking over, Luca De Meo takes a bold step – Kering, the owner of Gucci, sells its cosmetics division to L'Oréal for EUR 4 billion to improve the current situation.

The agreement will provide the French cosmetics company L'Oréal with access to its fragrance line Creed, founded in 1760. We are also talking about A 50-year license to develop perfumes and cosmetics for Kering fashion brands such as Bottega Veneta, Gucci and Balenciaga – reports The Guardian. New, 50-year contract with L'Oréal will enter into force after the expiry of the current contract Cotywhich is valid until 2028. Coty shares fell 4% on the New York Stock Exchange on the news.

A practical step to reduce debt

The net debt of the Kering holding at the end of June was EUR 9.5 billion, excluding EUR 6 billion obliged by long-term leasing contracts. It certainly doesn't help that the company is also struggling with the decline of its top brand during this period Gucci. This is due to the decline in demand on the Chinese market by as much as 25% in the last quarter – reports Reuters.

He also informs that de Meo is postponing the plan to take over the Italian Valentino for now and is currently focusing on selling shares in his real estate properties. These are difficult decisions to raise cash, and at the same time emphasized by the CEO as necessary. It also states that it is open to reorganization and rationalization when necessary.

It is also worth adding one more fact. Kering's cosmetics business started in 2023, when it took over the manufacturer Creed. This enabled him to reduce his dependence on the Gucci brand, which cannot be hidden – it generates most of the holding's profits. The question then becomes how much it has helped him, as the French conglomerate continues to struggle to grow the industry. The cosmetics sector recorded an operating loss of EUR 60 million in the first six months of the year.

From an analytical point of view

Jefferies analysts they predict that the cosmetics department may bring sales at the level 800 million euros and an operating profit of 280 million euros, assuming a 10% royalty on Gucci sales. It is possible that this will be received positively by L'Oréal, which will be another example of a buy-and-grow transaction in the ever-popular fragrance area, they said.

Experts from Bernstein noted: “We believe that selling Kering Beauté for an amount similar to what was spent on Creed two years ago is a difficult but necessary step.”

WM

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