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Luxury and Asia Bolster L’Oréal Q3 Sales

The company’s revenues in the three-month period beat financial analysts’ expectations.

PARIS — L’Oréal Luxe and the company’s business in Asia helped bolster group third-quarter sales, which by gaining 5.1 percent on a like-for-like basis beat financial analysts’ expectations.

“Overall, good numbers,” commented Eva Quiroga, an analyst at Deutsche Bank. “Consensus expected growth of slightly over 4 percent, and they delivered slightly over 5 percent.”

L’Oréal’s organic uptick was better than anticipated for Natixis, as well, although exchange rates had a more negative impact than the bank had predicted, at minus 3.3 percent.

As the world’s largest beauty-maker forecast earlier this year, its growth in the three months ended Sept. 30 accelerated versus the second quarter, when revenues gained 4.3 percent on a like-for-like basis.

“Of our seven food and HPC companies who have now reported [third-quarter results], four have beaten consensus expectations, six have seen growth accelerate in Q3 versus Q2 and 100 percent have seen improved growth in emerging markets, confirming our view that good growth is steadily returning,” wrote Andrew Wood, an analyst at Sanford C. Bernstein & Co. LLC, in a research note.

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L’Oréal on Thursday, following the close of the French bourse, said third-quarter sales reached 6.1 billion euros. In reported terms, the revenues declined 0.9 percent, dampened by the sale of The Body Shop.

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“The one area of disappointment was Consumer Products, where they are growing merely in line with the market [with a 2.3 percent rise on a constant basis] in spite of having brands like NYX that are now quite big and growing in double-digits,” Quiroga continued. “On the positive side, China is strong in both, luxury and — increasingly — the mass market, and continued strong growth in makeup is now joined by a pick-up in skin care, which is good news for them, given that these are the biggest categories.”

By division on a constant basis, sales for L’Oréal in the quarter gained 0.5 percent for Professional Products, 11.2 percent for L’Oréal Luxe and 6.2 percent for Active Cosmetics. Revenues in Western Europe were up 2.6 percent, 1.3 percent in North America and 10.2 percent in the new markets.

For the first nine months of the year, L’Oréal’s total revenues advanced 2.4 percent on a reported basis and 4.5 percent in constant terms to 19.51 billion euros.

“Luxury is booming,” Jean-Paul Agon, L’Oréal’s chairman and chief executive officer, said during a wide-ranging call with analysts on Thursday evening. “We estimate the market probably at around 9 percent year-to-date.

“The market is clearly driven by very strong consumption in Asia, mostly in China — but not only,” he continued. “Also, mostly by Chinese. The Chinese can be either in China, in Hong Kong, in Japan or in travel retail, or even in some other countries of the world. The [luxury] market is not as strong but is positive in other parts of the world, like Western Europe or North America.”

By product category at L’Oréal, skin-care sales have been accelerating, now registering strong mid-single-digit gains. “Skin care is back,” said Agon, also referring to the strength of makeup revenues, which are growing by a low-teen percentage.

“So now we have two engines to carry the growth of the market itself and to carry our own growth, which is very good news, and it makes us very confident for the future,” he said.

Year-to-date, sales from L’Oréal hair color and fragrance are a bit up, and revenues made by hair care are slightly in decline.

On the subject of the Professional Products division, Agon said the group has “thoroughly analyzed the reasons for the weakness of the division in the past two to three years, and we are very seriously addressing them this year,” without divulging details. He did say, however, that L’Oréal is quite confident it should be able to outperform the professional products market — estimated to grow at about 2 percent — soon.

Agon believes active cosmetics will continue to register strong growth, due to robust demand for products recommended by dermatologists and the international deployment of recently acquired CeraVe slated to begin next year.

Responding to an analyst asking whether he’s noted a slowdown in niche brands encroaching on larger labels’ business, Agon said there’s no crystal ball. “I think that after a period of intense mushrooming of little brands, we’re going to see the big brands striking back — at least on our side,” he said.

E-commerce keeps growing faster for the group, up 31.6 percent in the nine months, representing 7 percent of L’Oréal’s overall revenues. “It’s growing as it should, quarter after quarter, and so definitely at the end of the year e-commerce will become a very significant part of our business,” Agon said.

Travel retail is also motoring ahead, posting 16 percent gains and generating slightly less than 7 percent of company revenues and close to 20 percent of the Luxe division.

Of the channel, Agon said: “It’s increasing every quarter, and I think that the time it’s going to be 10 percent of the business is not that far away. I’m not saying that it’s for next year, [but] I really believe that this channel is very dynamic, which is going to be a great asset for us.”

He expects the beauty market worldwide to continue to grow at around 4 percent, and that L’Oréal will once again in 2017 be able to achieve growth in both sales and profits.