Dive Brief:

• Coty on Monday acquired a majority stake of Kylie Jenner's beauty business for $600 million, according to a company press release. The acquisition, which includes Kylie Cosmetics and Kylie Skin, is expected to close in the third quarter of fiscal 2020, and Jenner's brands will continue to be sold through beauty retailers "as well as owned digital channels."
• Under the terms of the partnership, Coty will own 51% of Jenner's beauty business. The goal of the acquisition is to turn Jenner's beauty business into a "global powerhouse brand," with an immediate focus on global expansion and entry into new categories, according to the release.
• Jenner will still control creative efforts for product, as well as communications initiatives, but Coty will have "overall responsibility for the portfolio's development, leveraging its global knowledge and capabilities in R&D, manufacturing, distribution, commercial and go-to-market expertise." Coty will also act as a licensee in skincare, fragrance and nail.

Dive Insight:

With the acquisition of Jenner's beauty business, especially Kylie Cosmetics, a particularly hot up-and-coming beauty brand,​ Coty is making a play to boost its portfolio of brands. The beauty company called out the move as a key part of its four-year turnaround strategy to return Coty to revenue growth.

Particularly important to the business was Jenner's appeal to young consumers, thanks especially to her social media presence. Coty Chief Financial Officer Pierre-André Terisse highlighted on a conference call with analysts that Kylie Jenner has over 270 million followers on social, many of them between the ages of 18 and 34. He also noted that Kylie Cosmetics has the second-highest number of followers of any beauty brand on social.

"Kylie Beauty will expand our presence in both prestige beauty and skincare, two categories in which we are underindexed," Terisse said. 

According to Terisse, Jenner's beauty business made $177 million in revenue in the trailing twelve months, a 40% increase over 2018, while Jenner's Kylie Skin is on track to reach $25 million in sales in 2019 and has over 50% repeat purchases from skincare customers. While Kylie Cosmetics started online, the brand announced an exclusive partnership with Ulta last year, which Ulta executives have highlighted as driving traffic and sales in stores. 

Thanks to that partnership, Kylie Cosmetics now sees 50% of sales through direct to consumer channels and 50% through retail, Terisse said. 

While Coty executives were excited about the opportunities the partnership offered — especially with international and category expansion — analysts were skeptical of the growth of Kylie Cosmetics, and the price tag Coty was willing to pay for the young brand while in the midst of a turnaround.

In response to questions of how well-advised the purchase was, and fears that Kylie Cosmetics may be in the midst of a slowdown, or nothing more than a fad, Terisse reiterated that Coty expects the brand to add to its revenue growth by greater than 1% over the next three years and that both the cosmetics and the skincare categories have been up year to date.

"We don't see weakness. We see strength everywhere," Terisse said, including skincare and cosmetics, as well as future categories the brand could enter. "We see further possibilities to expand distribution just because there is a lot of appetite in the market to take the product."

That includes possibilities in the U.K., Germany and Canada, in which Jenner has substantial followings. According to Terisse, "several international retailers" have expressed interest in carrying the brand.

"We'll keep looking at opportunities, as we always do," he said in response to a question about the possibility of further acquisitions. "This being said, with the turnaround, the strategic review and [the partnership], we have a lot of things to do now. Our focus is really going to be in leveraging these three elements."