L’Occitane International S.A. went from a net cash position to a net debt one this year as a result of loan financing for its recent Elemis acquisition, but the Hong Kong-listed, Swiss-based multibrand group maintained profitability and reported 21.8 percent growth in net profit to 117.6 million euros.
The increase in profits can be attributed to targeted investments and acquisitions made to strengthen the brand’s position in the skin-care market.
While the group said the results of the Elemis acquisition are largely accretive and the effects of the deal would only be seen in the next year, L’Occitane en Provence saw a successful launch of the Immortelle Reset serum. More than 800,000 units of the product were sold globally in fiscal year 2019, making it the group’s best-selling skin-care product to date, serving to consolidate the group’s position in that market.
The group also expressed an interest in maintaining a solid production pipeline with product innovation playing a key role in driving future growth. Off of the success of the serum, there are plans to extend the line to encompass face masks, eye serums and broaden the scope to hair-care and body products in a bid to create product outside of fall and winter when the brand tends to see the bulk of its sales thanks to the enduring popularity of the brand’s shea butter cream range.
“We’ve always expressed our ambition as a group to develop more skin-care business,” said André Hoffmann, executive director and vice chairman of L’Occitane International. “We know it has higher margins, it has very strong loyalty from customers and we felt that the strength of Elemis would compliment very nicely with some of the strengths of L’Occitane.”
The group’s net sales rose by 8.7 percent at constant exchange rates to 1.43 billion euros from 1.32 billion euros 2018 with high gross margin of 83.2 percent as a result of improved sales momentum and the group’s targeted investments.
Focusing on an omnichannel expansion strategy, the group’s retail store network grew by 17 net stores to a total of 1,572 in the fiscal year. In terms of same-store sales growth, China posted the highest rate of 6.9 percent, followed by Brazil and Russia with rates of 5.9 percent and 5.4 percent, respectively.
Geographically, the U.S., Russia and China were the fastest growing markets with LimeLife driving 18.2 percent sales growth in local currency in the first market and healthy same-store sales growth in Russia, which also saw new store openings and further development of wholesale and B2B channels in a bid to deepen market penetration. Sales in China maintained solid growth despite having seven fewer stores than last year, driven by strong performance during key marketing moments such as Singles’ Day, Chinese New Year and Women’s Day.
There are no plans for the group to acquire brands as it works to integrate Elemis. Under the group’s new “Pulse” strategy of sustainable growth, enhanced profitability and the building of trust, the focus is on building efficient distribution and decreasing cost, rolling out a “Ship from Store” initiative in Western Europe where web orders could be shipped from stores, thus lowering logistics costs.
When asked if the current macroeconomic climate might negatively impact the group, the response was optimistic, citing online and travel retail as opportunities for all brands under the group. “What we’re betting on is the growth of the consumer and the growth of the beauty category,” Hoffman said. “There’s no question that the beauty category still has enormous room to run in China, the penetration is still very small. Elemis is a very digitally focused company. They’re very strong in e-commerce. As our chief executive officer said, the profit margins on Elemis are significantly higher than L’Occitane so with the acquisition of Elemis, we will have some improved profitability performance of the overall group.”