L'Oréal headquarters

PARIS — L’Oréal’s second-quarter sales missed financial analysts’ estimates, as the world’s largest beauty company’s business was buffeted by the coronavirus pandemic.

The maker of Lancôme, Kiehl’s and Garnier products in the three-month period registered sales of 5.85 billion euros, down 19.4 percent in reported terms. On a like-for-like basis, group sales declined 18.8 percent, versus the 13 percent decrease expected by analysts.

“While we see L’Oréal’s sales miss as a foreshadowing of what is to come across beauty, [the group] sits as well-diversified and high-quality in [its] peer set,” Jeffries wrote in a research note.

“The key disappointment is about Consumer, which is strongly declining at minus [15.2] percent in Q2 versus consensus at minus 3.9 percent and ODDO at plus 3.4 percent,” Pierre Tegnér, an analyst at ODDO BHF, wrote in a note.

Another analyst said L’Oréal is “relatively overweight in makeup, which does not help, but a flat-ex makeup performance [as stated by the group] is not that impressive in light of what Unilever and P&G have been reporting.”

With like-for-like gains of 4.3 percent, L’Oréal’s Active Cosmetics Division’s second-quarter growth was slower than in the first quarter, despite its skin-care brands being available in pharmacies, among the only retail channels open during the lockdowns worldwide.

Still the division’s growth was stronger than any of L’Oréal’s others, and it was the only branch to post positive gains in the first half, at plus 9 percent on a like-for-like basis.

Sales at L’Oréal’s Luxe Division, which faced nearly total retail closures as perfumeries, department stores and travel-retail outlets shuttered, were down 24.7 percent on a like-for-like basis.

As hair salons were closed in most of the period, the Professional Products Division unsurprisingly took that hardest hit, with sales declining 31.7 percent on a like-for-like basis.

“We were a bit worried about a softness since mid-June after a catch-up effect just after the end of lockdowns [in Europe and the USA],” wrote ODDO’s Tegner. “At the end of Q2, U.S., Germany and China are back to growth.”

In the first half of 2020, L’Oréal posted a 21.8 percent decline in net profits to 1.82 billion euros. The company’s operating profitability came in at 18 percent of sales, which in the period fell 11.7 percent, in both reported and like-for-like terms, to 13.08 billion euros.

China and e-commerce were highlights in the six-month period ended June 30. Growth in China was up 17.5 percent in comparable terms, while e-commerce sales gained 64.6 percent.

Jean-Paul Agon, L’Oréal chairman and chief executive officer, lauded the group’s resilience in a statement published after the close of the Paris Bourse on Thursday.

“The consumption of beauty products over the period was strongly impacted by the closure of millions of points of sale — hair salons, perfumeries, department stores, airport stores, etc. — which caused a real crisis of supply, rather than demand, with consumers temporarily unable to purchase products and services,” he said.

“In these exceptionally difficult circumstances, each division of L’Oréal has demonstrated great business resilience,” continued Agon. “As a result, the group overall has managed to outperform the beauty market over the period. It has seen its activity accelerate month-after-month since April, and is progressively returning to growth.”

The executive said L’Oréal is approaching the second half of the year with “lucidity, confidence and resolve.”

“Lucidity because the global health crisis is unfortunately not over. Confidence because consumers’ appetite for beauty is intact, access to points of sale should be easier going forward and e-commerce will continue to get stronger,” Agon said. “And finally resolve because in this second half of the year, we are embarking on an aggressive plan of new product launches and business drivers to stimulate, in partnership with our retail partners, the return of the consumption of beauty products.

“We are therefore determined to outperform the market, find again the path to growth if the sanitary conditions allow it, and deliver solid profitability,” he said.

In a note, analyst Javier Escalante outlined three main reasons Evercore ISI believes L’Oréal will emerge stronger from the COVID-19 pandemic. These include the company’s digital literacy, which makes it “more likely to scout trends and borrow consumers’ lingo faster.”

L’Oréal’s speed was also highlighted. Evercore noted the group has constantly pivoted during the pandemic. For instance, there was “a pivot to skin care as lockdowns ease, with sales growing 50 percent in June, offsetting not only weak demand but also a massive reduction of makeup sku’s by mass retailers, which cut the number of makeup items on shelf by 67 percent.”

Science’s revalorization within beauty is another point. Evercore emphasized that L’Oréal invests more in beauty-focused R&D than all of its competitors.

“Chances are that the next big molecule will come out of a L’Oréal lab — a company founded by the chemist who invented hair coloring,” the note said.

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