Business
L’Oreal third quarter sales disappoint as China spends less on beauty
Global Banking & Finance Review®
Company
By Dominique Patton
PARIS (Reuters) -French cosmetics giant L’Oreal reported a rise in third quarter sales on Tuesday that missed expectations after low consumer confidence in China sapped demand for beauty products.
The company, which owns the Maybelline and Lancome brands, said sales for the three months to the end of September were 10.28 billion euros ($11.11 billion), a 3.4% rise on a like-for-like basis at constant exchange rates, but below a Visible Alpha consensus of 6% cited by Jefferies.
The last time L’Oréal reported quarterly organic sales growth lower than this was Q3 2020 in the darkest days of COVID,” analysts at RBC wrote in a note.
The scale and breadth of the miss is likely to be taken negatively by investors, Barclays analysts said further.
“While investors were nervous going into results, these are still weaker than feared,” they said.
Shares in Paris-based L’Oreal have lost 20% since June, wiping about 50 billion euros off its valuation, on investor concerns about consumption in China.
The North Asia region, dominated by China, accounts for a quarter of group sales, but a property crisis and high youth unemployment in the world’s No. 2 economy has curbed consumer spending.
Sales in North Asia declined 6.5% in the third quarter, worsening from a decline of 2.4% in the prior three months.
Chief Executive Nicolas Hieronimus said the drop in the market in China was high single digits in the third quarter and the luxury segment fell the most, in “negative mid-teens.
We are doing better than a very negative market but it’s not good enough,” he said.
Data on the wider economy on Friday showed China grew at the slowest pace since early 2023 in the third quarter, while luxury bellwether LVMH said last week consumer confidence in the country was at an all-time low.
LVMH, Ray-Ban maker EssilorLuxottica, and Salvatore Ferragamo all blamed China weakness for missed third quarter sales estimates last week.
Reduced demand for suncare and dermatological products also eroded growth at L’Oreal, with the Dermatological Beauty division, which has been the fastest growing, slowing to 0.8%, compared with 10.8% in the second quarter.
The miss was partly attributed to lapping a 57 million euros insurance payout in the prior year’s same quarter, but was still disappointing, said analysts at Barclays.
We need to bring new stuff to get consumers excited,” Hieronimus told analysts on a call, noting that the biggest area of slowdown in the division was in the U.S. where there had been few innovations.
“Young GenZs went to try other brands. It’s up to us to recruit them,” he added.
The company also experienced slower growth in emerging markets outside China.
Sales growth in Europe, L’Oreal’s biggest region at a third of group sales, slowed in the third quarter too, as predicted, but the North American region did better, with sales up by 5.2%, accelerating from the earlier quarter, helped by booming haircare and fragrance demand, Hieronimus said.
The company aims to increase the number of launches next year, he added, as it no longer benefits from the tailwinds of resurgent demand after the pandemic and inflation.
($1 = 0.9255 euros)
(Reporting by Dominique Patton; editing by Barbara Lewis)
Consumer confidence is an economic indicator that measures how optimistic or pessimistic consumers are regarding their expected financial situation and the overall economy.
Emerging markets are countries with developing economies that are becoming more integrated into the global economy, often characterized by rapid growth and industrialization.
Organic sales growth refers to the increase in sales generated by existing operations, excluding any revenue from acquisitions or divestitures.
A property crisis occurs when there is a significant decline in property values, often leading to increased foreclosures and financial instability in the real estate market.
The luxury segment refers to high-end products and services that are marketed to affluent consumers, often characterized by premium pricing and exclusive branding.
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