PARIS — L’Oréal continued its acceleration, registering third-quarter sales 20 percent above pre-pandemic levels and outperforming analyst expectations for the three months ended Sept. 30, despite a slowdown in growth for its Luxe division and ongoing difficulties in China.
The world’s largest beauty group on Thursday reported total sales of 9.58 billion euros for the three months ended Sept. 30, which represented a 19.7 percent year-on-year gain in reported terms and an increase of 9.1 percent on a like-for-like basis.
“In a context of unprecedented volatility, marked by the public health restrictions in China and inflation in the Western world, L’Oréal achieved a very solid quarter, continuing at a steady pace of growth compared to 2019,” said Nicolas Hieronimus, L’Oréal chief executive officer, in a statement released after the closure of the Paris Bourse.
“L’Oréal continues to shine,” wrote Bernstein analyst Bruno Monteyne in a research note. “What is remarkable is that L’Oréal still delivers double-digit organic growth, even when China doesn’t grow, confirming the success of its diversification across regions, across divisions and across price points.”
In a global beauty market that was up 6 percent in value in the first nine months of the year, L’Oréal’s sales gained 12 percent, Hieronimus told analysts during a conference call. The group benefited from its efforts to rebalance its geographic footprint and from exchange-rate effects, it said. It registered double-digit growth in all regions except North Asia and saw balanced gains across its divisions, all of which outperformed the beauty market overall, L’Oréal reported.
Nevertheless, the L’Oréal Luxe division, which includes brands such as Kiehl’s, Yves Saint Laurent and Biotherm, underperformed expectations. Its sales came in at 3.61 billion euros, an increase of 15.8 percent in reported terms and 4.6 percent on an organic basis, L’Oréal stated, numbers that Jefferies analyst Molly Wylenzek described as “well below expectations” — and below the results of its category peers, including LVMH Moët Hennessy Louis Vuitton.
The division was penalized by the Chinese lockdowns, weaker than anticipated performance in the U.S., with the exception of fragrance, and sourcing difficulties, notably for scent bottles.
For perfumes, Hieronimus said during the call, L’Oréal’s growth continues to outpace the market, with sales up 28 percent year-to-date compared with a market up 16 percent. “We would have had an even better performance in [the third quarter] had we had all the glass bottles we needed,” he commented. Looking forward, Hieronimus said, the division will focus on “allocating our capacities to the best performing brands.” Addressing issues for the Luxe activity in the U.S., Hieronimus admitted, “We could have done more from the innovation side….It’s in our hands, we just have to do it.”
One major bright spot for L’Oréal’s portfolio in the third quarter was its mass-market Consumer Products division, where reported sales were up 19.1 percent, or 10 percent on an organic basis, to reach 3.55 billion euros. Driven by its premiumization strategy as well as by price increases, the division’s performance was particularly strong in emerging markets, L’Oréal said, including “spectacular gains” in India and Mexico, as well as “solid growth” in the U.S. and Europe.
The Active Cosmetics division saw third-quarter sales leap 38.8 percent year-on-year in reported terms to 1.32 billion euros, a rise of 26 percent on an organic basis. Professional Products revenues, at 1.09 billion euros, gained 15.7 percent in reported terms and 4.3 percent like-for-like.
“All in all, the beauty market has grown in [the third quarter] at the same pace as it has done in the first half of the year, despite all the perturbations…the continuous difficulties in China with lockdowns that…we had not anticipated, all the more as they were simultaneously happening in Hainan and mainland China, [and] inflation in Europe,” Hieronimus said.
For the Chinese domestic market, said group chief financial officer Christophe Babule, L’Oréal’s sellout in the third quarter was up 6.7 percent compared with an overall market that was down 4.7 percent, numbers that were roughly stable compared with the first half, and with all divisions except Consumer Products reporting gains.
With the all-important Singles’ Day campaigns fast approaching and China’s leading influencers now back online, “I hope that Double 11 will be a good vintage in a market that right now remains pretty chilly because of the lockdowns,” Hieronimus said.
For the third quarter, at 2.41 billion euros, L’Oréal’s sales in North Asia grew 11.3 percent in reported terms, but only 0.3 percent like-for-like.
In Europe, the group’s sales were up 12.1 percent in reported terms or 10.5 percent like-for-like, to 2.88 billion euros. With the exception of the U.K., the beauty firm is seeing no signs yet of consumers trading down. “As far as the slowdown in consumption or trading down…we don’t see any major changes with a few exceptions….In the U.K. where inflation is the highest…we see a little bit of trading down, people spacing their visits to the hairdresser, buying a bit less premium skin care,” Hieronimus said.
North American sales for the three-month period gained 27.7 percent in reported terms and 9.3 percent like-for-like to hit 2.82 billion euros. While the company had feared a slowdown Stateside early in the quarter, he added, consumers who had traveled abroad over the summer had returned strongly after the break. “When they came back to the U.S. in August and September, it was back to school, back to stylists and back to derms, so that was very positive.”
In the emerging markets of the South Asia-Pacific, Middle East, North Africa and sub-Saharan Africa [or SAPMENA-SSA] zone, revenues gained 41.5 percent, or 30 percent like-for-like, to 787.7 million euros, while in Latin America, high inflation helped drive sales up 36.5 percent in reported terms — or 16.2 percent like-for-like — to 675.6 million.
While inflation accounted for a large part of sales gains in the third quarter as price increases were implemented at all of the divisions, volume sales were also positive for all but the L’Oréal Luxe division, said Babule. By region, volumes were up everywhere except North Asia, he said. “Besides the price increase, we see that in most of our business, whether by region or by division, we are in positive territory in terms of volume.” In the U.S., Hieronimus said, “consumers are kind of getting used to this inflation situation and they are considering spending money on beauty favorably.”
In the first nine months of 2022, the group’s sales grew 20.5 percent on a reported basis and 12 percent like-for-like, to reach 27.94 billion euros.