Puig Brands

In May 2024, Puig Brands (BME: PUIG) became the largest European IPO since 2022. After the successful IPO at the top of the announced range (24.5 EUR per share) implying a valuation of nearly 14 billion, the fragrance, makeup and skincare giant has accumulated a 43% drawdown uniquely driven by multiple compression.

With a unique position in the beauty industry thanks to its ownership of brands with tremendous heritage like Paco Rabanne, Carolina Herrera and Jean Paul Gautier, with a 11.5% value market share in the selected fragrances in 2024, Puig fights toe-to-toe with LVMH and Coty for the second position in the ranking for this category behind L’Oreal.

Puig has industry leading gross margins (75%) ahead of companies that the market perceives as high-quality and rewards with generous multiples (often over 30x earnings) like L’Oreal and Estee Lauder. This is just one of the metrics that signals the positioning of Puig as a dominant player in the Prestige category and a shelter against US tariffs impact (tariffs are paid on the COGS).

Unlike the rest of the giants in the industry, the brands of Puig have not reached maturity, and they still have substantial runway for growth. The company is heavily investing in international expansion and branching its main brands out into new categories. Due to the heavy ownership of intangible assets of the company this investment in growth is not obvious for a traditional value investor**. We do not only believe that the market is undervaluing Puig Brands, but it is also underestimating its current true earnings**.

As we noted in our last week’s analysis on the Beauty Industry, Puig Brands is exposed to the right beauty categoriesand is setting itself to achieve exponential growth in the right geographies.

This ambitious growth strategy is led under the disciplined supervision of the third generation of the founding Puig family. The family owns 74% of the shares and Marc Puig, a grandson of the founder, has been the CEO since 2004.

In the initial equity research that we present today we discuss:

• The history of the company and the tremendous heritage of their brands
• The business strategy of Puig Brands
• The particularities of their operation, marketing and distribution.
• Their unique market positioning and the opportunities behind its brands.
• A deep dive into the factors and metrics that are going determine whether Puig can thrive in each of the 3 categories it currently competes in.
• The economics and the valuation of the investment opportunity
• The risks and metrics to monitor in the investment
• Our opinion on the opportunity

History

Puig’s origins date back to 1914, when Antonio Puig Castelló founded the company in Barcelona, Spain. From the beginning Puig focused on the perfumery and cosmetics sector, though initially it distributed foreign brands before developing its own products. In 1922 Puig launched its first in-house product, Milady lipstick – notably the first lipstick manufactured in Spain.

In the 1950s the founder gradually started delegating decision-making to this second generation, handing the reigns of the business to his 4 sons: Antonio and Mariano focused on the perfume business, José María oversaw new business diversification, and Enrique managed institutional relations.

Internationalization did not happen until the end of the 50s decade, opening its first overseas branch in the United States.

Paco Rabanne

By 1968 Puig had also established a foothold in Paris, the heart of the fashion and fragrance industry. That year Puig partnered with cutting-edge French-based Spanish designer Paco Rabanne. The alignment with an international designer was pivotal in transforming Puig from a local Spanish company into an emerging player on the global stage. In 1969 the first ever Paco Rabanne fragrance was launched.

Thanks to this successful partnership, further moves to expand the company took place over the next decade, expanding into UK and LATAM and building the factory in Chartres, France, which is still one of the 7 manufacturing plants it currently has.

Diversification and acquisition of iconic brands

The 90s were a decade of transformation for Puig as the company started majorly investing in the skincare and color cosmetics business lines.

In 1995 and 1998, Puig acquired Carolina Herrera and Nina Ricci, two of their biggest brands today. Similarly to Paco Rabanne, these brands carry the names of the fashion designers that built the brands.

Professional management and M&A

In 1998, patriarch Mariano Puig (one of the founder’s sons and long-time company leader) stepped back and handed over the reins to an executive committee, formalizing professional management of the group.

In 2000, Puig acquired the Spanish fragrance company Myrurgia, and the following year it completed the full acquisition of Perfumería Gal (in which it had held a partial stake since 1995). Myrurgia brought in labels like Mango and Adolfo Domínguez fragrances, while Perfumería Gal was known for classics like Heno de Pravia soaps.

Under the external management, the company further developed its international distribution footprint.

The Marc Puig Era

After a brief period with the first non-family CEO at the helm (Javier Cano, appointed in 2000), the Puig family’s third generation took charge. Marc Puig, a grandson of the founder, was named CEO in 2004, succeeding Cano. Marc Puig later also assumed the role of Chairman in 2007, reinforcing family stewardship at the top of the organization. His brother Manuel Puig served alongside him as vice president

In 2008, Puig launched wildly successful new fragrances such as Paco Rabanne’s 1 Million (still a top 5 masculine fragrance in the prestige category in 2024) and entered the realm of celebrity fragrances by partnering with pop star Shakira to create her fragrance line in 2008. This celebrity partnership is the only one that Puig still has today alongside an earlier partnership with actor Antonio Banderas that begun in 1997.

In 2011 by Puig’s purchase of a majority stake (55%) in the famed French fashion label Jean Paul Gaultier, buying out the shares from Hermès (45%) and the designer himself (10%) to become the principal shareholder of the Gaultier fashion and perfume business. On the fragrance side, Puig took full control of the Jean Paul Gaultier fragrance license as of January 1, 2016. Since then Puig effectively controls the fragrance business, and holds majority control of the fashion house, but it is not a 100% owner.

Over the last decade, Puig was an early observer of the success of niche brands (highly luxurious limited-edition products), deciding to adopt some into their family of brands. The rest of the M&A over the last decade has supported the rapid growth of the skincare and makeup business lines. The exact numbers of many of these transactions are undisclosed.

• In January 2015, Puig acquired the British perfume house **Penhaligon’**s and the French artisanal fragrance brand L’Artisan Parfumeur.
• In 2018, Puig announced a long-term licensing agreement to develop the beauty business of luxury shoe brand Christian Louboutin, and it took a majority stake in Belgian designer Dries Van Noten’s.
• In 2020, Puig made a splash in the cosmetics arena by acquiring a majority stake in Charlotte Tilbury Beauty, a fast-growing British luxury makeup and skincare brand. Puig acquired a majority stake in Charlotte Tilbury in 2020 (at a £1.3 billion valuation), Puig reports that Charlotte Tilbury’s net revenues have more than tripled since 2020. In late 2024, Puig and Charlotte reached a new agreement to gradually acquire 100% of Charlotte Tilbury by 2031.
• In 2022 Puig became the majority owner of Swedish ultra-luxury perfume brand Byredo, and also increased its stakes to gain control of wellness and beauty brands Kama Ayurveda (India) and Loto del Sur (Colombia)
• In early 2024, Puig added Barbara Sturm, a German luxury skincare line, to its portfolio by acquiring a majority stake

Over the last decade, Puig has prioritized brand ownership over licensing, today owned brands represent 96% of the revenues. Its current licenses (Comme des Garçons Parfums, Christian Louboutin, and Benetton, as well as celebrity collaborations) are now a minor share of its business.

This strategy came after 2 major license losses in 2018, when Valentino’s and Prada decided not to renew its fragrance licensing agreement with Puig and both migrated to L’Oréal.

Another major partnership that Puig used to have and now competes with Puig due to the quality of their dupes is Zara. Puig had an agreement with Zara (Inditex) for fragrance development that lasted from 1998 to 2010. Zara currently sells dupes of all the major luxury fragrance brands, including those of Puig.

The Business of Puig and its main Brands

Business Overview

Puig is the owner of 17 Premium Love Brands from 10 different countries. Puig is a vertically integrated fashion and beauty group that spans nearly the entire value chain. The company doesn’t just license brands or distribute products; it actively conceives, develops, formulates, and manufactures many of its fragrances and beauty products in-house. It owns laboratories and production sites in Spain and France where fragrances and personal care products are created, ensuring Puig maintains strict control over quality and innovation. Its acquisitions in the last decade, such as Charlotte Tilbury and Dr. Barbara Sturm, also gave it advanced laboratories and expertise in make-up and skincare, adding a research and development edge in areas where it had been less present historically. This means Puig is not only a marketer but also a creator and producer, able to guide products from idea to finished good. Puig currently owns 7 production plants in four countries

At the same time, Puig is recognized for its marketing and brand-building capabilities, which have made scents like 1 Million or Good Girl global blockbusters. These 2 fragrances are sold in containers with very particular form factors (a gold ingot and a high-heeled shoe) that turned out to be a marketing success. Puig is internationally recognized as a marketing innovation hub.

An important piece of information for the sake of understanding the tariff impact is that more than 95% of Puig’s manufacturing happens in Europe.