Earlier this year, Kylie Jenner sold half of her cosmetics company in one of the biggest celebrity payouts of all time. But the fine print of the deal shows she's inflated her company's size and success. for years.
Editor's note, June 1, 2020:This story was updated to include a statement from Kylie Jenner's reps.
More than a decade into their fame, the Kardashian-Jenners tend to elicit eye rolls and sighs from jaded media consumers. But when it comes to her wealth, even critics of reality TV's first family are intrigued; The Kardashian-Jenner machine -- and the money it generates -- has been the subject of articles, podcasts, and even books. But no one cares more about the issue than the family itself, which has struggled for yearsForbesfor higher places on our annual net worth and celebrity merit lists.
When the youngest of the clan, Kylie Jenner, sold 51% of her Kylie Cosmetics to beauty giant Coty in January this year, it was a turning point for the family. As one of the biggest celebrity payouts of all time, the transaction seemed to confirm what Kylie had been saying all alongwhat Forbes had explainedin March 2019: that Kylie Jenner was actually a billionaire — at least before the coronavirus.
"Kylie is a modern icon with an incredible grasp of the beauty consumer," said Coty chairman Peter Harf when announcing the acquisition in November.
But in the fine print of the deal, a less flattering truth surfaced. The filings released by the publicly traded Coty in the last six months reveal one of the family's best-kept secrets: Kylie's business is significantly smaller and less profitable than the family has spent years running the cosmetics industry and media, inclusiveForbes, believe.
Of course, white lies, omissions, and outright fabrications are to be expected from the family, which perfected—and then monetized—the concept of "famous for being famous." But similar toDonald Trump's decade-long obsessionwith his net worth, the unusual lengths the Jenners were willing to go to — invites includedForbesinto their mansions and CPA offices and even preparing tax returns that were likely fake - shows how desperate some of the ultra-rich are to look even richer.
"It's fair to say that everything the Kardashian-Jenner family does is overblown," said Stephanie Wissink, a consumer products equity analyst at Jefferies. "To stay on the mark, it has to be bigger than it is."
Based on this new information -- plus the impact of Covid-19 on beauty stocks and consumer spending --Forbesnow believes Kylie Jenner isn't a billionaire, even after raking in an estimated $340 million after-tax from the sale.
As with other Kardashian ventures, Kylie's business began to capitalize on a minor scandal. The youngest of the family, she spent more than a year denying tabloid speculation that she was using lip filler injections before finally admitting it in May 2015. Far from embarrassed about being caught in a lie, they — and their smart mom, Kris — jumped at it as a marketing opportunity.
With $250,000 of her earnings from modeling, endorsements andKeeping up with the KardashiansAppearances, Kylie launched her first batch of 15,000 lip kits in November 2015, consisting of a lip liner and a matching lipstick. Thanks to clever Instagram marketing, the $29 kits were gone in less than a minute. "Before I even updated the page, everything was sold out," she later sayssaid Forbes.
By the end of 2016, Kylie had dozens of new products and a reputation as an up and coming newcomer to the cosmetics industry. A few months after her sister Kim met Kardashian Westa Forbes coverIn July 2016, Jenner publicists launched a campaign to "get oneForbesCoverage for Kylie.” Revenue for the company's first 18 months totaled $400 million, with a $250 million personal take-home salary for Kylie. Pressed for evidence, they opened their books. During meetings at Kris Jenner's palatial Hidden Hills, California estate and the nearby family accountant's office,Forbestax returns were filed showing 2016 earnings of $307 million and a personal income of more than $110 million for Kylie that year. It would have been enough to set them to N0. 2 on the Celebrity 100 list, behind only Taylor Swift, the accountant was quick to point out. But while the documents looked authentic and bore Kylie Jenner's signature, they weren't exactly convincing, as the story they told of e-commerce brand Kylie Cosmetics growing from zero to $300 million in sales in a single year was hardly tenable believe was.
After speaking to a handful of analysts and industry experts who also found the Jenners' claims lacking credibility, we settled on a more reasonable estimate for our 2017 Celebrity 100 list: $41 million in total earnings for Kylie.good for the No. 59 place. Kris was "so frustrated," the Jenners' PR flack shot back. "We've done so much."
Two months later,a story appeared inWWD, a trade publication known as the "bible of fashion" that uses the exact numbers the Jenners first tried to pin downForbes. "There has been much speculation about the size of their business, with estimates ranging from $50 million to $300 million," the story reads. "Well, here's the bad news for more established beauty players: Jenner topped the higher number easily. Kylie Cosmetics actually hit $420 million in retail sales — in just 18 months — Kris Jenner revealed. . . . It was the first time the Jenners had publicly disclosed the size of the company, the story boasted — "and they made sure to do so."WWDwith documentation.”
That sky-high sales figure – repeated everywherepeopletoCNBCandwealth– seized. By summer 2018 whenForbesCalculating Kylie's net worth for our list of the richest self-made women had changed the industry's mind about Kylie's business. Those huge earnings are "quite possible," said one analyst, adding that she's heard similar numbers herself. Another suggested earnings of around $350 million. Estimates continued to rise. According to a 2018 research note by Piper Jaffray, the revenue totaled $400 million. An Oppenheimer report forecast sales of over $700 million by 2020.
The Jenners offered us their own number: 2017 revenue grew 7% to $330 million, they said. "No other influencer has ever matched the volume or had the rabid fans and consistency that Kylie has had over the past two and a half years," said an executive at e-commerce platform Shopify, which manages Kylie's online storeForbesback then. Due to her rapid success - corroborated by industry sources and 2016 tax returns - Kylie performedthe cover ofForbes Magazinein July 2018 at number 27 on our list of the richest self-made women. At the age of 20, she was worth $900 million, we estimated, and would soon become the youngest self-made billionaire of all time.
"Thank you for this article and the recognition",Kylie on Instagram. Kim Kardashian West tweeted her congratulations — twice. "I'm SO proud," Kris Jenner finally wrote with satisfaction.
The next month, Kylie celebrated her 21st birthday at West Hollywood's Delilah nightclub in a Barbie-themed outfit with a pink ball pit, performances by Travis Scott and Dave Chappelle — and bartenders in black shirts with KyliesForbesCover printed on it, her face next to the words "America's Women Billionaires". Until early next yearit has officially crossed the ten-digit threshold.
Any doubts Kylie wasn't a billionairewere seemingly wiped out in November 2019 when Coty announced it would buy 51% of Kylie Cosmetics for $600 million, effectively valuing the business at about $1.2 billion. The deal gave the struggling 116-year-old Coty a hip, social media-savvy brand to mend his sagging balance sheet. It gave Kylie a huge opportunity for expansion, a boatload of cash, and apparently clear proof of her billionaire status.
Speaking to equity analysts, Coty's CFO touted the deal as "a compelling financial equation" that would help "transform Coty into a modern, growing and profitable beauty player." Analysts were immediately skeptical. It looked like Coty was paying way too much for a prominent brand that could prove to be a fad, a charge. Another asked how Coty could be sure that Kylie would continue to be committed to promoting the business for years to come.
Then there was Kylie's finances. Revenue over a 12-month period prior to the deal: $177 million according to Coty's presentation - far less than the estimates published at the time. More troublesome, Coty said sales were up 40% from 2018, meaning the company only made about $125 million that year, nowhere near the $360 million that the Jenners had ledForbesbelieve. Kylie's skincare line, which launched in May 2019, grossed $100 million in its first month and a half, Kylie's reps told us. The filings show that the line was indeed "on track" to end the year with sales of just $25 million.
"I think everyone was surprised," said Wissink, the Jefferies analyst who answered the phone. "The downside to this announcement was that the deal was a lot smaller than everyone expected."
So much smaller, in fact, that it's virtually impossible for the numbers the Jenners have been selling in previous years to be true. If Kylie Cosmetics had sales of $125 million in 2018, how could it have made $307 million in 2016 (as per the company's alleged tax returns) or $330 million in 2017?
An explanation: Kylie's business has quietly plummeted by more than half in a single year. If so, Coty paid for a "strong growth" brand that's actually a lotkleinerbusiness than just a few years ago. (Coty didn't answer questions about Kylie Cosmetics for this story.) Data from e-commerce company Rakuten, which tracks a select number of receipts, suggests that Kylie's online sales fell 62% between 2016 and 2018.
Still, virtually every industry expert polled throughForbesthinks that the business couldn't collapse so badly so quickly."It seems unlikely that much revenue could have evaporated overnight," says Evercore analyst Omar Saad. "There doesn't seem to be any evidence that business has plummeted," adds cosmetics veteran Jeffrey Ten, who has run companies like Note Cosmetics, Nyx, and Calvin Klein Beauty. "If so, why would Coty buy it?"
More likely: The deal was never that big to begin with, and the Jenners have lied about it every year since 2016 — including their accountant filing tax returns with false numbers — to help SaftForbes’Estimates of Kylie's income and net worth. While we can't prove those documents were fake (although it's likely), it's clear that Kylie's camp lied.
There is also the question of profit:Forbeshad estimated that their business, which has little overhead, generates a 44% net margin. But Coty's filing suggests that Kylie's earnings are likely lower than we thought, given that her Ebitda margin -- which accounts for some, but not all, of her expenses -- is only about 25%.
For years, the Jenners insisted that all of those profits go straight to Kylie because she owned the business 100%. However, Coty's purchase agreement specifically lists a "KMJ 2018 Irrevocable Trust" controlled by Kristen M. Jenner that owns a profit share in Kylie Cosmetics. Upon sale, the document says the trust would receive an equity or ownership interest in the company. The Jenners first toldForbesthat the trust holds money Kylie Jenner earned before she turned 18 and that Kylie is his beneficiary. But the trust seems to have been well establishedafter thisKylie turned 18 and the Jenners declined to provide evidence to support her claims. Given the lack of clarity -- and the history of lies -- we're playing it safe and assume the trust belongs to Kris Jenner. That means Kylie Jenner owns an estimated 44.1% of Kylie Cosmetics, instead of 49%.
"You have to keep in mind that they're in the entertainment business," says Ten. "Everything in entertainment has to be over the top in order to grab attention."
Ttaking into account all this new information and considering the pandemic,Forbesrecalculated Kylie's net worth and concluded she's not a billionaire. A more realistic calculation of her personal fortune is just under $900 million, despite the headlines surrounding the Coty deal that seemed to confirm her billionaire status. More than a third of that is the estimated $340 million in after-tax cash she would have reaped by selling much of her company. The remainder is made up of revised earnings based on her company's smaller size and a more conservative estimate of its profitability, as well as the value of her remaining stake in Kylie Cosmetics -- which is not only smaller than the Jenners have led us to believe, but it is worth less today than when the deal was announced in November given the economic impact of the coronavirus.
Coty's stock price has fallen more than 60% since the deal closed, and even better-performing competitors like Ulta Beauty and Estée Lauder are still down in single digits. Add that to the fact that Wall Street tends to think Coty overpaid initially and there's no way to realistically put Kylie's net worth at over a billion -- despite her massive payout.
As usual, we asked the Jenners for input on our numbers. But pressed for answers to the many disagreements, the typically talkative family did something atypical: They stopped answering our questions.
Editor'sNote, June 1, 2020:After the publication of this story, representatives from Kylie and Kris Jenner sent a letter toForbesdeny that Kylie lied or that the tax returns the Jenners sent us contained incorrect numbers. "The allegations that the Jenners and/or their accountants falsified tax returns and then lied about their 2016 earnings for the past four years are absolutely false," the letter reads in part.
Additional reporting by Chloe Sorvino and Natalie Robehmed