L’Oréal Outperformance Continues in Q1, Despite China Lag
PARIS — L’Oréal continues to fire on all cylinders, outpacing analyst consensus estimates for its first-quarter sales by a long shot.
Revenues at the world’s largest beauty company grew 14.6 percent in reported terms and 13 percent on a like-for-like basis in the three months to March 31 – way ahead of consensus forecasts of 7.1 percent like-for-like growth.
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The maker of Lancôme, Kiehl’s and Garnier products, among others, was spurred on by growth in demand for its dermocosmetics and mass-market products and by emerging markets, despite ongoing lackluster results in China, especially for the Luxe division.
After the close of the Paris Bourse Wednesday evening, L’Oréal reported total sales of 10.38 billion euros for the first quarter.
“Using superlatives when writing about L’Oréal is common practice. So the impact may fade … but these are truly outstanding numbers,” wrote Bernstein analyst Bruno Monteyne in a research note. “They grew at nearly twice consensus numbers, despite China still being a drag. The fact that both [emerging markets excluding China] and the Consumer Division are doing well is not a coincidence: mass market ranges are an essential key in unlocking those new emerging markets. What was once considered a handicap for L’Oréal versus peers, is now becoming a material strength.”
L’Oréal’s sales were up double digits — in both reported terms and like-for-like — in every region except North Asia, where reduced stock-in-trade in Mainland China at the beginning of the quarter negatively impacted numbers.
Sales there have picked up since, and the company continued to gain market share in China in the three months to March, said Nicolas Hieronimus, L’Oréal’s chief executive officer, during a conference call with analysts and journalists Wednesday evening. There is a “clear desire both from consumers and from the authorities to boost growth, and that is materializing,” said Hieronimus.
Since February, he said, both invoicing and sell-through in China are up in the double digits. “It’s a good sign for us that we have absorbed our extra inventory and now we are back to pretty dynamic growth.”
Broken down by division, L’Oréal Luxe’s sales came in at 3.73 billion euros, up 7.7 percent on a reported basis and 6.5 percent in like-for-like terms. Jefferies’ analyst Molly Wylenzek pinpointed that growth as “softer than expected in light of plus 10 percent from LVMH’s Perfumes and Cosmetics division last week.”
Nevertheless, L’Oréal highlighted that the numbers represented a clear acceleration on previous quarters, and said the division expanded its lead in fragrance, driven by Yves Saint Laurent and the couture brands Valentino, Mugler and Prada. In skin care, Japanese brand Takami and Helena Rubinstein drove sales, and makeup accelerated in North America.
The Professional Products Division registered sales of 1.14 billion euros, a 9.8 percent increase in reported terms and up 7.6 percent like-for-like. Its products performed particularly well in mainland China, India and the U.K., L’Oréal said.
The newly renamed Dermatological Beauty division (formerly Active Cosmetics) posted spectacular gains, with sales up 34.6 percent, or 30.6 percent like-for-like, to hit 1.69 billion euros. La Roche-Posay was the primary contributor to the division’s growth, fueled by sun care innovation and the relaunch of Cicaplast. CeraVe, SkinCeuticals and the recently acquired SkinBetter Science were also pinpointed as growth drivers for the activity.
The Consumer Products Division’s sales rose 15.7 percent on a reported basis, or 14.7 percent like-for-like, to hit 3.82 billion euros, benefiting from premiumization as well as volume gains, and performing particularly well in Europe and North America as well as in emerging markets, notably India, Mexico, Brazil and Thailand.
“While the Derma beat was likely anticipated, we see the Consumer [like-for-like] as above the latest expectations,” commented Wylenzek.
The company benefited from value gains on price inflation and premiumization across divisions, L’Oréal said. Overall, value accounted for 7.8 percent of the like-for-like sales gain and volume, 5.2 percent.
“L’Oréal has long outspent its rivals on R&D investment and much of this has been ploughed into developing ‘active products,’” wrote Gerrit Smit, manager of Stonehage Fleming Global Best Ideas Equity Fund. “This investment is now reaping its rewards.”
By geographic region, starting in Europe — L’Oréal’s largest market — the group’s sales gained 16.6 percent, or 16 percent like-for-like, to reach 3.33 billion euros. They were up 22.2 percent, or 16.6 percent like-for-like, in North America. In North Asia, revenues were up 1.1 percent, or 1.9 percent like-for-like, to 2.83 billion euros. In the South Asia Pacific, Middle East, North Africa, Sub-Saharan Africa (or SAPMENA-SSA) zone, sales of 840.8 million euros increased 23.5 percent, or 26.7 percent in reported terms, while in Latin America, revenues increased 31.8 percent, or 22.3 percent in reported terms, to 684.4 million euros.
Looking to the months ahead, Hieronimus said, “though there are still a lot of clouds in the sky, inflation has not disappeared, the risk of recession has not totally disappeared, but we see blue patches because overall the news is a bit better.” He continued, “We see consumer confidence in the U.S. going up, which is very important. It’s a good sign and that’s promising for the rest of the year…Consumer confidence, which was low in China, [is] picking up, and Europe is resisting very well.”
Fragrance continues to do well, reaching new consumers, especially in China, and with daily usage increasing globally, he said. “I see no reason to think that fragrance is going to slow down, because it’s just the beginning for China and we know there are millions of consumers to cover there.”
While makeup is finally back above 2019 levels, the company is seeing no cannibalization of other categories, especially with younger consumers’ appetite for skin care, which has been a boon to the Dermatological Beauty division.
CeraVe recently overtook Neutrogena as the bestselling U.S. skin care brand all distribution segments combined, according to Hieronimus. “The younger consumers that were makeup buyers and not so much skin care buyers, except when they had acne, have also started investing into keeping their skin young and protecting themselves from UV rays,” he said.
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