When Coty Loses the Gucci License — What Then?

PARIS — What will it mean for Coty Inc. when it loses the Gucci fragrance in 2028?

Analysts are speculating about just that hours after it was announced Sunday night that L’Oréal now has the rights to enter into a 50-year exclusive license for the creation, development and distribution of fragrance and beauty products for Gucci, starting in 2028, when Coty’s license with Kering expires. 

That is part of the 4-billion-euro deal revealed between L’Oréal to acquire Kering Beauty and forge a strategic partnership in beauty and wellness.

“We have long assumed Coty would lose the Gucci license upon expiration in 2028 and do think the Street has largely come around to this view as well,” wrote Lauren Lieberman, a Barclays analyst, in a research note. “We estimate the loss of Gucci could be about 12.5 percent dilutive to total company EBITDA in 2028 and about 14 percent dilutive to the business excluding the Consumer Beauty assets currently up for sale.”

As previously reported, Coty on Sept. 30 announced a strategic review of its mass color cosmetics business, as well as its operations in Brazil. 

On June 16, WWD reported that Coty was in very early stages of exploring option deals for a potential sell-off in two parts — its Luxury and Consumer divisions.

Also in June, Barclays had estimated the Gucci license represented approximately 10 percent of Coty’s sales, or about $555 million, and approximately 12 percent of total company adjusted EBITDA, or about $121 million. But if Coty sells its Consumer brands, Gucci would represent a larger share. Barclays estimates that could be about 14 percent of company sales and adjusted EBITDA.

It will be difficult for Coty to cover what would be lost without the Gucci license, especially in today’s business climate and with Coty shifting strategy. 

Barclays underlines Coty has been focusing on creating a “strong balance” between owned and licensed brands. Today, 76 percent of the company’s portfolio is owned or with licenses of 10 years or more. The other 14 percent is about 70 percent comprised of Gucci.

Coty is working to de-risk business by proactively renewing and/or significantly extending licenses, “overdriving” its owned or long-duration licensed brand, expanding into white spaces and adding new license, Lieberman summed up. 

TD Securities estimates the Gucci license expiration for Coty could have a potential negative earnings-per-share impact of minus 4 percent to minus 19 percent annually.

“We expect near-term downward pressure on the stock due to uncertainty and competitive risk,” wrote Olivier Chen, a TD Securities analyst, in a note.  

“The upcoming loss of the Gucci beauty license has become a more significant concern in light of Coty’s possible divestiture of the business segment that represents about 27 percent of its revenue,” wrote Jefferies analyst Ashley Helgans, in a note.

Gucci is Coty’s third-largest fragrance brand.

“With three years left on the license, an early buyback would have cost Kering about $600 million to $800 million,” Helgans wrote. “While a premature termination would have provided Coty with a meaningful cash inflow to support strategic initiatives like share repurchases or M&A, the now planned expiration will instead leave a sizable gap in Coty’s portfolio that [the company] will need to backfill without the benefit of additional capital.”