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L’Oréal Upbeat About Bounce-back Despite 4.3% Drop in Sales

The group expects that the beauty market should recover quickly as soon as lockdowns ease.

PARIS — L’Oréal said it expects a speedy bounce-back in demand of beauty products after lockdowns to help combat the coronavirus crisis are lifted in countries around the world, and noted China is beginning to recover already.

First-quarter sales at the maker of Lancôme, Garnier and Kiehl’s products declined 4.3 percent in reported terms and 4.8 percent on a like-for-like basis, broadly in line with the group’s guidance given in late March that its sales should be down around 5 percent.

Revenues at the world’s largest beauty group equaled 7.23 billion euros in the three months ended March 31, L’Oréal reported after the Paris bourse closed on Thursday.

In the quarter, L’Oréal outperformed the beauty market, which the group estimates declined by about 8 percent.

The group’s two divisions most negatively impacted in the period were L’Oréal Luxe, with sales down 9.3 percent in organic terms to 2.68 billion euros, and the Professional Products Division, with revenues decreasing 10.5 percent to 751.1 million euros.

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L’Oréal’s Consumer Products Division’s revenues dipped 3.6 percent to 3.17 billion euros, and its Active Cosmetics Division registered sales of 839.9 million euros, up 13.2 percent.

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By geographic zone, L’Oréal’s sales on a like-for-like basis declined 2.9 percent in new markets, 7.7 percent in Western Europe and 4.8 percent in North America.

The group’s e-commerce business grew 52.6 percent and generated close to 20 percent of L’Oréal’s overall sales. Meanwhile, the company’s travel retail revenues fell 12 percent.

“First-quarter 2020 was tough, and the second quarter will likely be tougher, although the regional balance should shift with Asia being badly impacted early in the first quarter and bouncing back in late first quarter or early second quarter, while Europe and the U.S. will bear the brunt of the closures in the second quarter,” said Eva Quiroga, an analyst at Deutsche Bank.

Jean-Paul Agon, during a conference call with analysts and journalists on Thursday evening, said that this current crisis is unlike others in the recent past, “especially if you compare with 2008,” he said, referring to the financial crisis. “Two thousand and eight, because it started with a financial crisis, then it generated a kind of demand crisis. There was a crisis on the demand, and consumers were, in fact, buying less.

“Here, it is not a demand crisis. It is a supply crisis,” said Agon. “In fact, consumers are really eager to buy beauty products — all types of beauty products — even luxury or professional products, but they just can’t do it because the stores are closed. So I think it’s very different because it means that it should be really temporary.”

Already the group has noted strong signs of recovery in China, which ended the first quarter with sales up 6 percent. L’Oréal believes that key country is a bellwether for other markets, as confinements are loosened, and retailers and salons open up again.

“The experience in China is very interesting and very telling for the other parts of the world as we have seen it unfolding in the past few weeks,” said Agon. “What we have seen in China is a pretty quick bounce-back of the consumption of beauty products, and that’s especially true for our L’Oréal brands.”

The executive said in March, L’Oréal’s sales in the country were back in the black. “We are also on a positive trend for April, at between 5 and 10 percent,” continued Agon, adding the group is confident it will achieve strong double-digit sales growth in China in the second quarter.

He outlined trends L’Oréal noted during and after the country’s confinement period. While people stayed home, there was good consumption of skin care, hair care and — what’s also being seen in Europe today — very strong consumption of hair color. Concurrently, there was a weakness in makeup sales.

Now, L’Oréal finds all beauty categories are gaining traction in China. Agon thinks that once the confinement measures are all finished, consumption levels will be pretty similar to those pre-crisis.

In a department store in Wuhan, the coronavirus’ first epicenter, the beauty department has achieved the strongest recovery, Agon said.

“Based on the previous experience that we have had, when consumers will be able to shop again, and to get access to their brands, beauty will be back to a very good consumption [level],” said Agon.