Coty exits Gucci license early to raise cash for turnaround
Early Termination of Gucci Beauty License and Strategic Financial Moves
July 7 (Reuters) - Coty said on Tuesday it had agreed to return the Gucci Beauty license to Kering for about $400 million, ending the agreement about a year early as the U.S. cosmetics group raises cash to cut debt and invest in core brands.
Debt Reduction and Brand Investment
The New York-based company will use most of the proceeds to pay down debt, with some capital earmarked for investment in key brands including BOSS and Marc Jacobs, a person familiar with the matter said.
Stock Performance and Market Challenges
Shares of the CoverGirl owner were little changed in after-hours trading, but have lost more than 80% of their value since the start of 2024 as the company struggles with weak demand and competition in mass-market beauty during a leadership transition.
Restructuring and Strategic Review
The agreement comes as Coty restructures its business to improve profitability after launching a strategic review of its consumer beauty division last September that could lead to the sale of brands including CoverGirl and Rimmel.
Continuation of Gucci Beauty Operations
Coty will continue operating Gucci Beauty through at least June 30, 2027, under the terms of the deal. The original license was set to expire in 2028.
Financial Details of the Transaction
The transaction includes a $250 million upfront payment, $150 million due by September 30, 2027, and up to $30 million in performance-based incentives designed to ensure a smooth transition.
Transition Incentives and Additional Payments
The additional payment is intended to encourage a smooth transition, the person said, adding, "Kering is paying Coty to keep L'Oréal happy."
Coty will also sell existing Gucci Beauty inventory to Kering and expects to incur about $30 million in cash taxes from the deal.
Industry Context and Analyst Perspectives
The deal follows Kering's beauty deal with L'Oréal last year, which included rights to a long-term Gucci beauty license after Coty's existing contract expires.
In February, L'Oréal chief executive Nicolas Hieronimus confirmed discussions were underway between Kering and Coty and expressed interest in gaining access ahead of the 2028 expiry.
Gucci Fragrances and Kering’s Beauty Portfolio
Analysts view Gucci fragrances as the crown jewel of Kering's beauty portfolio, with potential to mirror the strong growth L'Oréal achieved with Saint Laurent.
The Gucci license has been one of Coty's most valuable assets since the company acquired Procter & Gamble's beauty brands in 2016, with the brand's revenue growing more than 60% since 2019.
Leadership and Future Strategy
Under interim CEO Markus Strobel, Coty is streamlining its portfolio to strengthen its core brand strategy.
(Reporting by Sanskriti Shekhar and Arunima Kumar in Bengaluru and Alexander Marrow in London ; Editing by Tasim Zahid)
