Kering’s $4.3 billion (€4 billion) sale of its beauty division to L’Oréal marks the clearest signal yet that the French luxury group is resetting around its core business: fashion.
Announced on October 19 and expected to close in the first half of 2026, the agreement transfers Kering Beauté — including Creed — to L’Oréal, and grants L’Oréal 50-year exclusive licenses for Gucci, Bottega Veneta and Balenciaga fragrances and cosmetics. Gucci’s license will start after its existing agreement with Coty Inc. expires in 2028, while Bottega Veneta and Balenciaga will transition immediately after the deal’s close.
For L’Oréal, it’s a landmark move. In an analyst note, investment bank J.P. Morgan called it the company’s largest acquisition ever, strengthening its luxury fragrance leadership and securing Gucci as a long-term “blockbuster” license. Also in a note, Bank Barclays estimated that Creed represents about 93% of Kering Beauté’s sales, with margins close to 40%, nearly double L’Oréal’s existing Luxe division average. L’Oréal’s Luxe business, which includes Lancôme, YSL and Giorgio Armani Beauty, among others, currently accounts for 36% of its sales, with margins of about 22%, according to Barclays.
For Kering, the deal is about discipline, rather than diversification. “In terms of management distraction, there’s no doubt this will allow them to focus on fashion,” said Ariel Ohana, managing partner at advisory firm Ohana & Co, who has worked on advisory for LVMH and Coty. “What will take time is rebuilding what they’ve lost in brand equity across their top brands. Money buys them time, but it won’t instantly solve the issues Kering has faced.”
Kering’s 2024 revenue fell 12% year over year to €17.2 billion ($18.6 billion), driven by soft sales at Gucci and Balenciaga. That downturn, coupled with €9.5 billion ($10.2 billion) in net debt as of June 30, prompted a broader strategic rethink inside the company. Citi Bank estimates that the transaction will reduce Kering’s full-year 2026 EBIT by a high single-digit percentage and earnings per share by a mid-single-digit percentage, while cutting its financial leverage to about 1.5 times net debt-to-EBITDA from roughly 2.5 times, according to analyst notes. In practical terms, that drop in leverage could free up roughly €3.5 billion ($3.8 billion) in borrowing capacity and cash flexibility, enough to finance store refurbishments, marketing investment and selective acquisitions across its core fashion houses without adding new debt, according to analyst notes.
At Kering’s September 9 shareholder meeting in Paris, chairman François-Henri Pinault emphasized that a renewed focus on the group’s fashion houses was overdue. “Over the past two years, we have refocused our efforts on the essential, desirability, scarcity, excellence,” he told investors. “We have strengthened our fundamentals and worked on our structure to better serve our houses.”
The transaction gives the group space to deliver on that promise. “You need a financial transaction to be able to breathe and plan,” said Ohana. “This will give them the serenity to do the work they need to do on their luxury brands.”
Investment management Bernstein analysts called the sale “bitter but necessary medicine” in an October 20 note. “Stepping back from an in-house beauty business will allow new Kering CEO Luca de Meo to focus his full attention on the Gucci turnaround,” the firm wrote, adding that proceeds from the sale will accelerate deleveraging and restore strategic clarity after an intense acquisition phase that included the Creed purchase for €3.5 billion (approx. $3.8 billion) in 2023.
De Meo, who formally took over as CEO on September 15, laid out his priorities in his first address to shareholders: “We will focus our efforts initially on the most effective levers to improve the quality of our capital allocation,” he said. “We shall be swift, effective and decisive. We will consolidate the foundations of our houses and build a luxury group that is more integrated, more agile and driven by a conquering spirit.”
Analysts described the deal as a U-turn from Kering’s earlier ambition to replicate its successful in-house eyewear model, launched a decade ago. Industry sources have also suggested the group may now explore divesting that eyewear division to streamline further. However, it would not be an easy decision due to the success of the business. “This transaction gives them immediate focus and the ability to do things at the right cadence,” said Ohana. “In this industry, nothing happens instantly, it’s always about rebuilding over time.”
On announcement day, Kering shares rose 3.6% to €320.55 ($346), while L’Oréal’s climbed 0.6% to €392.90 ($424). Investors viewed the move as a shift toward financial discipline under de Meo’s leadership.
Kering’s approach stands apart from that of LVMH, which continues to expand into hospitality and experiential retail. Pinault and de Meo appear to be steering Kering back to its creative roots: prioritizing craftsmanship, tighter brand control and retail precision over volume expansion. “I think this move is really Kering-specific,” said Ohana. “Many luxury houses still rely heavily on beauty, fragrance and eyewear to generate profit. The fact that Kering is doing this doesn’t automatically signal something for all the other groups.”
For Pinault, the message to shareholders remains consistent. “Luxury is an economy based on desire,” he said in the September shareholders meeting. “You need to reinvent, astonish and elevate at all times.”
The beauty sale — L’Oréal’s biggest deal to date — may dominate headlines, but for Kering, its importance lies in what it frees up. “There’s work to be done,” said Ohana. “But this gives Kering the clarity and the time it needs to rebuild its houses properly. Money buys time, and time buys focus.”
And for the group that once defined its strength through diversification, that focus now sits squarely back where it began: fashion.
