PARIS — L’Oréal’s sales accelerated in the fourth quarter, rising 5.5 percent on a like-for-like basis, spurred by its luxury business and Asia, and beating financial analysts’ projections.
The world’s largest beauty company registered sales of 6.51 billion euros in the three months ended Dec. 31. In reported terms, the revenues declined 4.1 percent versus the same prior-year period, when sales from The Body Shop remained consolidated.
L’Oréal released its results after the close of the Bourse on Thursday in a statement including commentary from Jean-Paul Agon, company chairman and chief executive officer. Looking ahead to full-year 2018, he said L’Oréal is confident it will once again outperform the beauty market “and achieve significant growth in like-for-like sales and an increase in profitability.”
It’s not new for the company to foresee outpacing the market, but how Agon termed it struck a chord.
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“It is the most positive outlook statement I can remember since the end of the financial crisis,” said Eva Quiroga, an analyst at Deutsche Bank. “Usually they talk about outperforming the market; this time, they are talking about achieving ‘significant growth.’ Now we just need to figure out their definition of ‘significant.’”
The guidance came on the back of gains in both the fourth quarter and full year.
L’Oréal’s revenue uptick in the fourth quarter outpaced the analysts’ consensus estimate of a 5 percent rise and surpassed Sanford C. Bernstein & Co. LLC’s estimate of a 4.8 percent uptick, according to Andrew Wood, an analyst at the investment firm, in a note. He wrote the sales increase marked the highest level for L’Oréal since the third quarter of 2016.
“The overall number was better, but the category mix was reassuring, as well, as all four divisions grew,” said Quiroga.
On a comparable basis, sales in the fourth quarter advanced 9.8 percent for the L’Oréal Luxe Division; 8.4 percent for the Active Cosmetics Division; 3 percent for the Consumer Products Division, and 2 percent for the Professional Products Division.
“As for the regional mix, positive points were the good growth in Western Europe, where year-on-year comps were very tough, and the return into double-digit territory in emerging markets, especially Asia,” continued Quiroga, referring to the zones’ gains of 1.9 percent, 13.2 percent and 18.8 percent, respectively.
Wood wrote that the strong increase in New Markets, which also include Latin America, Eastern Europe, plus the Africa and Middle East region, “is further evidence that the [emerging markets] are ‘back.’”
Analysts noted the weak growth in North America, where sales declined 0.8 percent on a comparable basis.
L’Oréal said while the makeup category’s performance there was boosted further by the brands NYX Professional Makeup and L’Oréal Paris, hair care “is proving less dynamic. The L’Oréal Luxe Division has slowed, against a background of inventory reductions. Yves Saint Laurent and IT Cosmetics, however, have continued to record double-digit growth.”
Quiroga considered some of the issues being faced “not surprising post-Estée Lauder (weakness in certain channels) and P&G (destocking), but the reference to weakness in hair care [was] disappointing.”
Net profits at L’Oréal for full-year 2017 were 3.59 billion euros, up 15.3 percent against 2016. Operating profit grew 3 percent to 4.68 billion euros, and operating margin — coming in at 18 percent — was a record for the company.
Sales at L’Oréal were 26.02 billion euros, representing a 0.7 percent rise in reported terms and a 4.8 percent gain on a like-for-like basis.
“In a beauty market that pursued its steady growth in 2017, L’Oréal had a good year with sustained sales growth momentum and robust profits,” said Agon. “As announced the second half accelerated compared with the first, particularly in the fourth quarter with 5.5 percent like-for-like growth.
“All the divisions recorded sales growth, especially L’Oréal Luxe, which is delivering spectacular growth, particularly in Asia,” he continued. “The Active Cosmetics Division achieved more than 2 billion euros of sales for the first time. Growth in the Consumer Products Division is being slowed by the continuing difficulties in the American and French markets, while sales in the Professional Products Division improved at the end of the year.”
The executive highlighted that eight of L’Oréal’s brands now generate sales of more than 1 billion euros.
“As for the geographic zones, the New Markets exceeded more than 10 billion euros of sales for the first time ever, thanks especially to the dynamism of the Asia-Pacific zone,” said Agon. “Performance in Western Europe remained solid.”
L’Oréal’s e-commerce sales jumped 33.6 percent to reach 2 billion euros, while the company consolidated its number-one rank in travel retail during 2017, its 40th year in the channel.
Agon said he expects that in 2018 the beauty industry will remain “dynamic and contrasted.”