From KKR to KKW
Contouring is a make-up technique which uses shading and highlighting to make the structure of the face look better. Chief Executive Peter Harf hopes a $200 million investment in a fifth of the make-up business of reality star Kim Kardashian West, who has given the method mass appeal, will do the same for Coty. But with an $8 billion debt pile and collapsing sales, it’s more like caked concealer, only drawing the eye to Coty’s flaws.
No financials are available to set against the $1 billion valuation assigned to Kardashian West’s KKW, although those for cosmetics lines Coty already owns have recently been under scrutiny. Forbes last month accused Kardashian West’s half-sister Kylie Jenner, whose own company sold a 51% stake to Coty in 2019 at a $1.2 billion valuation, of providing misleading financial figures to the publication. Jenner said that article contained “a number of inaccurate statements and unproven assumptions”.
Still, looking at their social media following – not as odd as it sounds given Coty believes social media brands are here to stay – Harf paid around $6.60 for each of Kylie’s 183 million Instagram followers, while each of her sister’s 177 million fans were worth around a dollar less. That’s still expensive considering the KKW deal happened after Covid-19 caused sales in the three months to March to fall 20% year-on-year, and did not involve a control premium. The Kylie deal was done at 6.8 times trailing sales, against Estée Lauder’s 4.7 times.
JAB veteran Harf is admittedly buying a smaller chunk of the older sister’s business, but the logic remains sketchy. He’s already got a blueprint for a successful direct-to-consumer operation through Kylie’s business. That business model helped French rival L’Oréal protect its sales against travel bans and lockdowns. Kylie is also already giving Coty a burgeoning skincare line.
May’s news that buyout group KKR would invest $750 million in Coty, followed by Harf’s appointment as CEO, made it seem like Coty would immediately start to tackle debt that as of end-March was 8 times 2020 EBITDA, on Refinitiv forecasts. The KKW punt suggests he should spend less time hobnobbing with Kardashian West’s mother Kris Jenner – aka the “momager” – and more coming up with a convincing turnaround plan.