PARIS — Worldwide, the beauty market is growing at an estimated 5.5 percent — the best rate in a decade or more — albeit with strong contrasts in categories and in geographies, said Jean-Paul Agon, L’Oréal chairman and chief executive officer.
He shared the information with financial analysts and journalists during a call Wednesday morning, following the release of the French beauty giant’s second-quarter and first-half results the prior night, after the close of the Paris Bourse.
As previously reported, the group’s second-quarter sales growth, of 9.8 percent to 7.26 billion euros, was negatively impacted by business in North America. On a like-for-like basis, revenues advanced 6.8 percent, slightly missing analysts’ consensus.
On Wednesday, L’Oréal’s stock closed down 2.2 percent to 242 euros.
In 2019, the main growth drivers for the beauty market overall remain the same as in 2018, according to Agon. Category-wise it’s luxury, which is advancing by double digits, with especially strong demand in Asia and travel retail. There’s also dermo cosmetics, which is dynamic in all regions and fueled by the worldwide trend for health and wellness.
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“In terms of channels, travel retail is still very dynamic, particularly for luxury brands in Asia,” said Agon. “E-commerce is growing by double digits in every zone and every sector, accounting for roughly half of the global growth in the beauty market.
“In emerging countries, such as India, Indonesia and the Philippines, access to e-commerce is leapfrogging the development of traditional distribution, reaching new consumers — even in the most remote corners,” the executive continued.
On a regional basis, business in Asia keeps growing quickly. “China is, of course, the main contributor, and has shown no signs of a slowdown,” said Agon. “The growth of the beauty market [there] even accelerated in the second quarter compared to the first one.”
Western Europe remains fairly flat, but has slightly recovered in the south.
“North America is still growing, but at a slower pace, largely due to the slowdown in makeup, which is now flat in the U.S. at best,” said Agon. “By category, skin care is leading in every region of the world and in every sector of the market, balancing the slowdown in makeup, particularly in the U.S. and Western Europe.”
Speaking of L’Oréal, Agon said the group’s travel-retail business is now so large, that if it were a country — sales-wise — it would be the company’s third biggest, following the U.S. and China.
“E-commerce for us is on fire,” he continued, referring to the channel’s sales growth of 48.5 percent on a like-for-like basis in the first half. “[That’s] twice the speed of the market and now represents 13.2 percent of our total turnover.
“All zones and all divisions are growing strongly in this channel,” Agon added, explaining the gains are pretty homogeneous in each.
“In China, e-commerce now accounts for more than half of our mass-market and dermocosmetics sales,” he said.
Agon answered analysts’ questions, including one about the strategy behind L’Oréal’s ModiFace providing its artificial intelligence-powered technology for Amazon’s first virtual cosmetics try-ons.
“We bought ModiFace in order to boost the sales of our brands and categories with different partners. Amazon is a very important partner, and we thought it made sense for them and for us to partner on this,” said Agon, calling it a win-win scenario.
He fielded numerous queries, as well, about L’Oréal’s business in North America. “It’s clearly the weak point of this first semester, which [for] all other regions was very strong,” said Agon.
L’Oréal estimates that overall, the North American beauty market decelerated to around plus-3 percent. On the continent, the group noted good performances by its Professional Products and Active Cosmetics divisions.
“But we were disappointed with our performance in Consumer and Luxury,” said Agon.
“On Consumer, the market was down, but we were also below market, and that is mostly because we are really over-relying on makeup,” he continued. “In the U.S., we have 40 percent of the market share in makeup. Makeup is more than 50 percent of our sales [there]. And, obviously, when we are in the cycle of weak makeup growth, this is definitely a headwind against us.”
The luxury market also decelerated in North America. “Here, again, we are pretty strong in makeup, and the makeup market in luxury got really slow, so that played against us,” said Agon. “But all in all, we were also not overperforming the market.”
The executive noted L’Oréal is clearly strengthening its plans for second-half 2019 and 2020 to bounce back in the U.S. “But it may take some time — it probably will not happen before the end of the year,” he said.
Agon responded to a question about the men’s beauty business, saying it generates an estimated 10 percent of the beauty market overall and of L’Oréal’s sales. The segment, he said, is “not really growing in the Western world, [but] the good news is that it is growing in the Asian world. Men’s skin care is definitely growing very well in Asia, especially in China and India.”
Agon said given the good first-half results — when the company’s operating profit rose 12.1 percent to 2.89 billion euros, and sales increased 10.6 percent to 14.81 billion euros — L’Oréal is looking ahead with “great confidence.”
This is due to numerous factors, including the beauty market being in good shape.
“Secondly, our big brands are very dynamic, with the eight billionaire brands driving growth of plus 8 percent in the first semester,” said Agon. “We expect these big brands to remain strong. The launch plans for the second semester are…very solid, and we have some very important initiatives to come.”
On the luxury front, that includes fragrances for Lancôme, Yves Saint Laurent Beauté and Valentino, for instance.
Agon said L’Oréal is confident that its Consumer Products and Professional Products divisions will keep accelerating, and that the company’s business in Western Europe, Latin America and the Africa, Middle East zone should improve in the July-to-December period.
“Therefore, despite a volatile and contrasted environment, we start the second half with optimism and confidence in our ability to once again outperform the beauty market and achieve another year of growth in both sales and profits,” said Agon.