L'Oreal flags first China growth in two years but misses sales forecast

By Dominique Patton

PARIS (Reuters) -French beauty conglomerate L'Oreal posted weaker-than-expected third-quarter growth on Tuesday, weighed down by its performance in North America, but it flagged improving demand in China for its luxury brands.

Nicolas Hieronimus, CEO of the maker of CeraVe creams and Valentino perfume, estimated that the China beauty market grew about 3% in the quarter, its first increase in two years, as consumer confidence slightly improved.

"I'm always very careful about China because one quarter doesn't make a trend. But overall the market has gone into positive territory," he told analysts, adding that L'Oreal had outperformed the wider luxury beauty market there.

L'Oreal's sales growth has slowed in recent quarters, after post-pandemic inflation eased in Western markets and consumers in China curbed spending and switched to local brands in response to economic concerns.

Hieronimus said the company was still lagging in the mass-market sector in China, where it sells its L'Oreal Paris range of creams and Maybelline makeup, but had gained share in U.S. makeup which had been struggling.

Total sales from July to September rose 4.2% to 10.3 billion euros ($12.01 billion) from the year-ago quarter, but fell short of the 4.9% growth forecast in a Visible Alpha consensus cited by Jefferies.

Underlying growth, after removing the impact of phasing in a new IT system, was 4.9%, the company said.

"This is a notable miss versus high expectations in the market," said Jefferies analysts in a note.

The group has said it is increasing its focus on innovation and acquisitions to drive sales in the fastest-growing beauty categories, such as fragrances, which L'Oreal had said were growing at 11% in the first half.

That has slowed to about 6% in the third quarter, Jefferies analyst David Hayes estimated based on comments provided on the call. Perfume makers have hiked prices in the U.S. to offset import tariffs, which could be dragging on growth, he added.

L'Oreal is poised to extend its lead in fragrances, however, with a $4.7 billion deal announced on Sunday to acquire Kering's beauty business, including the rights to Gucci on expiry of the current licence agreement with smaller peer Coty, which is expected in 2028.

Among Kering's beauty product brands, Gucci could become as big as Yves Saint Laurent, which racks up almost 3 billion euros in annual sales, said Hieronimus.

He added that the deal to buy Kering will not prevent L'Oreal from considering any of the options on the table regarding a potential investment in Armani. L'Oreal was named by the late Giorgio Armani in his will as one of the preferred bidders to take a stake in the Italian fashion group after his death.

Armani representatives have already approached L'Oreal, sources told Reuters earlier this month.

($1 = 0.8575 euros)

(Reporting by Dominique Patton; editing by Barbara Lewis and Richard Chang)