Luxury group Kering (GB:0IIH)(PPRUY) is strengthening its foothold in the fast-growing luxury fragrance market to scale up its beauty segment. In the process, the company announced the acquisition of Creed, the largest global independent brand in the high-end fragrance market.
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While the terms of the deal were not disclosed, the company said it would finance the deal through funds controlled by BlackRock Long Term Private Capital Europe and its Chairman, Javier Ferrán.
What is the Strategic Move behind Creed’s Acquisition?
The high-end fragrance segment benefits from consumers’ shift towards the luxury category. Moreover, the segment remains underpenetrated compared to other discretionary luxury products, the company noted. Given the favorable market dynamics, the high-end luxury fragrance market offers double-digit growth.
Further, the segment is highly profitable, offers long-term resilience, and provides solid revenue recurrence due to customer loyalty and low price sensitivity.
Thus, Creed, with its rich heritage, high-end brand image, and a solid portfolio of celebrated franchises, is a strategic fit in Kering’s portfolio. Kering will leverage Creed’s brand and distribution network to scale its beauty segment and develop other fragrance franchises.
Also, the company plans to broaden Creed’s product offerings across geographies and categories, such as by expanding into the Chinese market and diversifying the brand’s feminine fragrance portfolio.
Creed has 36 branded stores and a solid distribution network. It delivered double-digit growth and strong profitability over the past several years, led by very high EBITDA margins. Creed generated revenue of over €250 million for the fiscal year ended March 31, 2023.
The acquisition is expected to close in the second half of 2023.
Is Kering a Good Stock?
High-end luxury has remained relatively resilient to economic weakness, allowing the companies operating in this space to deliver profitable growth. Kering stock has received four Buy and three Hold recommendations for a Moderate Buy consensus rating on TipRanks. Further, analysts’ average price target of €659.14 implies 31.64% upside potential from current levels.
