Lancôme L'Absolu Rouge, from L'Oréal

PARIS — L’Oréal posted its highest quarterly growth rate in a decade in the third quarter of the year, boosted by business from its Luxe and Active Cosmetics divisions.

The world’s largest beauty company said Tuesday night, after the close of the Paris Bourse, that its sales in the three months ended Sept. 30 reached 6.47 billion euros, up 6.2 percent in reported terms and 7.5 percent on a like-for-like basis, broadly beating financial analysts’ expectations.

“Organic sales growth is ‘booming’ at 7.5 percent, well above 5.9 percent consensus expectations we felt as a bit too optimistic. Indeed, we were expecting 5.3 percent,” wrote Pierre Tegner, an analyst with ODDO BHF, in a note. He highlighted a clear quarterly sequential acceleration in L’Oréal’s Luxe and Active Cosmetics divisions, plus in Asia and Eastern Europe.

Eva Quiroga, an analyst at Deutsche Bank, titled her note “3Q18: perfect growth, imperfect mix.” She said the positive surprise came from L’Oréal Luxe, with like-for-like sales growth of 15.6 percent, “well ahead of consensus,” and Active Cosmetics, with a 13.1 percent comparable gain, “comfortably ahead of consensus.”

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L’Oréal’s Active Cosmetics Division’s sales were buoyed by all of its major brands, such as La Roche-Posay and SkinCeuticals.

Meanwhile, the Consumer Products Division, which faces hurdles in markets such as Western Europe and Brazil, “remained disappointing” with comparable growth of 2.3 percent, according to Quiroga. And Professional Products’ sales continued to be muted with like-for-like gains of 1.5 percent. That division’s activity remained challenged in some Western European markets.

“At a regional level, performance was led by fantastic growth in New Markets (plus 17.1 percent), the fifth consecutive quarter with strong double-digit growth, led by outstanding growth in Asia-Pacific (plus 25.8 percent), even increasing from the elevated levels of Q2 (plus 22.9 percent),” wrote Andrew Wood, an analyst at Sanford C. Bernstein & Co. LLC, in a note. “However, Western Europe (minus 0.7 percent) remained weak and negative.”

In the first nine months of 2018, L’Oréal sales were up 1.8 percent in reported terms and 6.8 percent on a like-for-like basis to 19.86 billion euros.

The group’s chairman and chief executive officer Jean-Paul Agon fielded analysts’ questions during a call following the release of results.

The executive was asked about the luxury market in Asia, which he said “is flying, clearly. Luxury is flying everywhere…but it’s especially true in Asia. There have been rumors about a slowing down of consumption of luxury in Asia. I don’t know where these rumors come from. At least regarding our business, it’s still doing extremely well.”

L’Oréal’s travel-retail sales gained 29.9 percent in comparable terms.

The group’s e-commerce sales rose 38.3 percent on a like-for-like basis and represented 9.7 percent of L’Oréal’s overall sales. Agon said e-commerce performs well across the board.

By division, at the end of September, e-commerce revenues were up 34 percent for Professional Products, 35 percent for Consumer Products, 38 percent for Luxe and 48 percent for Active Cosmetics.

Geographically e-commerce is doing very well everywhere, too. “It’s of course very strong in Asia, above 50 percent, but [that’s] true also in Latin America, Eastern Europe and above 20 percent in Western Europe and North America,” said Agon. “And it’s across brands, across products — mostly skin care and makeup.”

Another highlight for L’Oréal during the reporting period was that its big brands — Lancôme,  Saint Laurent, Giorgio Armani and Kiehl’s — have been performing strong globally. “I think it’s going to be the best year, probably ever, for our big brands,” said Agon. “Which, by the way, proves the point that in this new digital world, it’s not the end of the big brands. On the contrary.”

Agon said over the past two to three years, the group’s growth was built on L’Oréal’s newly acquired brands, such as NYX Professional Makeup, Urban Decay and It Cosmetics. “This year it’s a little bit the other way around,” said the executive, adding the growth of those smaller brands will accelerate again.

He spoke, as well, of the beauty market overall. Agon described its as picking up pace. “This market is probably growing around 5 and 6 percent, but maybe it will get closer to 6 percent at the end of the year,” he said. “One of the reasons of the acceleration of the market is the effect of the digitalization of beauty, which is also probably one of the reasons for our own acceleration.”

In the first nine months of this year, the most dynamic product category was skin care, with sales rising by a percent in the midteens. Makeup revenues were up in the midsingle digits, and fragrances in the high-single digits. Sales for hair care and color were flat.

In the third quarter, L’Oréal noted overall a stepping up of skin-care sales and a slight slowdown in the fragrance category’s revenues.

Agon said he believes a major characteristic of today’s beauty market is that it’s “premiumizing.” “Which means that consumers are not looking for cheaper products. Consumers are more than ever interested and attracted by products that we call new, different and better, and more expensive,” he said.

“Regarding our own policy,” Agon added, “we are trading up; we are premiumizing. All the new products that we launch are at a slightly higher value than the previous ones, and this premiumization of the market is an extremely positive sign — obviously in terms of sales growth, in terms of margin.”

Agon had no comment when asked if L’Oréal might be interested in acquiring some of the brands from Nestlé’s Skin Health division, after the Swiss conglomerate — L’Oréal’s second largest individual stakeholder — said in September that it’s exploring strategic options for that activity.

On the back of the strong third quarter and nine months, he expects L’Oréal to outperform the cosmetics market and achieve significant like-for-like sales growth in 2019, while increasing group profitability.

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