Strategic Divestitures and Value Creation: Kering's EUR 4 Billion Sale of Beauty Division to L'Oréal

Kering's decision to sell its beauty division to L'Oréal for €4 billion represents a strategic pivot under new CEO Luca de Meo, aimed at deleveraging the luxury conglomerate and refocusing on its core fashion brands. This transaction, finalized in October 2025, transfers ownership of luxury fragrance brand Creed and long-term beauty licensing rights for Gucci, Bottega Veneta, and Balenciaga to L'Oréal, while establishing a 50-50 joint venture to explore beauty and wellness opportunities, according to Fortune. The move addresses Kering's €9.5 billion net debt as of June 2025, according to Devdiscourse, offering a critical infusion of liquidity to stabilize its financial position and reinvest in struggling fashion labels.

Strategic Rationale: Refocusing on Core Competencies

The sale aligns with de Meo's broader strategy to streamline Kering's portfolio. By exiting the beauty sector-a market where it faced stiff competition from L'Oréal and Estée Lauder-Kering can concentrate on its fashion and jewelry divisions, which account for over 80% of its revenue. A ROIC.ai report found the beauty division, launched in 2023 with the acquisition of Creed, had shown resilience with 9% sales growth in H1 2025 but remained a financial drag compared to the parent company's overall decline. This divestiture allows Kering to redirect resources toward revitalizing Gucci, which contributes over 40% of total revenue but has seen sales dip in key markets like China, reported by InvestorsHangout.

Capital Reallocation and Debt Reduction

The €4 billion proceeds from the sale will significantly reduce Kering's debt burden, which had risen due to high-profile acquisitions such as Creed (€3.5 billion in 2023) and real estate investments in Milan and New York, according to Devdiscourse. Devdiscourse indicates that Kering plans to use the capital to deleverage its balance sheet, delay the full acquisition of Valentino until 2028, and reinvest in core brands. This approach mirrors successful capital reallocation strategies seen in the luxury sector, where companies like LVMH have prioritized debt reduction to fund innovation in high-margin segments.

Shareholder Value and Market Reactions

While the immediate stock price impact of the October 2025 announcement remains unspecified, broader market reactions to Kering's strategic shifts under de Meo have been mixed. For instance, the appointment of de Meo in June 2025 spurred an 11.8% surge in Kering's share price, according to Future Funds. Conversely, the naming of Demna Gvasalia as Gucci's creative director in July 2025 led to a 10.5% decline, according to Future Funds. Analysts suggest that the beauty division sale, by addressing debt concerns and clarifying Kering's strategic focus, could restore investor confidence over time.

Long-Term Implications and Risks

The partnership with L'Oréal introduces both opportunities and risks. On one hand, L'Oréal's expertise in scaling beauty brands could enhance the value of Kering's fragrance licenses, while the joint venture opens avenues for innovation in wellness-a growing sector. On the other hand, Kering cedes control over a high-growth segment, potentially limiting future upside. However, given L'Oréal's track record in luxury beauty (e.g., NARS, Tom Ford), the collaboration is positioned to amplify Kering's indirect exposure to this market, as noted by Fortune.

Conclusion

Kering's sale of its beauty division to L'Oréal exemplifies a disciplined approach to capital reallocation, prioritizing financial stability and core brand reinvestment. By reducing debt and aligning with L'Oréal's scale, Kering strengthens its long-term value proposition, even as it navigates the challenges of a maturing luxury market. Investors will likely monitor the success of Gucci's relaunch and Kering's debt trajectory in the coming years to gauge the full impact of this strategic decision.