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L’Oréal Chief Talks Business Evolution

The beauty giant’s sales generated in the Asia-Pacific region and in North America were on a par during the first half.

PARIS — It was a noteworthy first half of 2018 for L’Oréal. Group sales in the Asia-Pacific region and in North America were on a par for the first time, and overall, skin-care revenues accelerated while makeup’s decelerated.

Jean-Paul Agon, chairman and chief executive officer of the world’s largest beauty company, addressed such phenomena during a wide-ranging call with financial analysts on Friday morning.

It took place less than one day after the maker of Lancôme, Kiehl’s and L’Oréal Paris products reported strong results. On an organic basis, second-quarter sales grew 6.3 percent and first-half sales gained 6.6 percent, powered by the company’s Luxe and Active Cosmetics divisions, plus its e-commerce and travel-retail activities.

Agon said the beauty market keeps growing at a healthy clip, at an estimated 5 percent year-to-date, which slightly outpaces the rate in 2017. “The beauty market is also very contrasted between channels, regions, categories — and at the same time clearly premiumizing,” he continued.

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In the first half of 2018, on an organic basis, L’Oréal’s sales grew 22 percent in the Asia-Pacific region to 3.55 billion euros, whereas revenues in North America increased 3 percent to 3.56 billion euros — putting the two zones on equal footing for the first time.

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“It is a milestone in the history of the group,” said Agon.

China is a key market for the company, which is notching revenue gains in all of its divisions there, led by Luxe. For the first time in many years, L’Oréal’s mass-market products were posting strong gains in the country, too.

“We are definitely building there a very, very bright future. It is very clear that the Chinese market is becoming one of the first markets of the world, and that preparing the new generation of young Chinese for our brands is extremely strategic,” explained Agon.

Asian consumers — and specifically those from China — have also been spurring growth in travel retail, which accounts for almost 5 percent of the global beauty market.

“Travel retail has become a very strong engine of growth for us,” said Agon, explaining it won’t be long until L’Oréal rings up 2 billion euros of revenues in the channel. “It’s going pretty soon to be 10 percent of our sales; it is a major element of our business. It’s growing very strongly, [at] plus 27 percent.”

Nowadays, L’Oréal is not only selling luxury products in travel retail, but brands such as L’Oréal Paris and Kérastase, as well. “We call it the sixth continent, but it is also like another international channel, which is extremely important for the future,” he said.

There was a noted evolution of product categories in the first half, as expected, explained Agon. In the period, sales of makeup decelerated, while skin-care revenues ramped up and now contribute approximately half of the beauty market growth worldwide.

“For the market — globally — skin care is back,” he said, estimating the makeup business is posting sales gains of between 5 and 6 percent, whereas skin care’s revenue increase is probably higher. “Our growth in makeup is on average with the market, but we are growing almost twice the speed of the market for skin care.”

Meanwhile, digital keeps gaining importance for L’Oréal, with 42 percent of its media spend going toward online, versus 35 percent last year. Agon said: “Crucially, our e-commerce business continues to flourish, expanding plus 36 percent at the end of June, and reaching 9.5 percent of our sales.”

He explained that overall, after a “dynamic and profitable first half, we are looking to the rest of the year with confidence.”

Agon expects the beauty market to keep growing at around 5 percent.

“Our H1 innovations will be deployed in full, and our H2 launch plan is significant across all divisions,” he said. “Our two driving forces, e-commerce and travel retail, will continue to accelerate and propel our business. And of course, our proactive, enhanced brand-building investments in H1 will fuel the growth of the group in H2.”

The executive said despite the economic- and currency-related volatility these days, L’Oréal will be able “to outperform once again the beauty market in 2018, to achieve significant like-for-like sales growth and to deliver an increase in profitability.”