Updated Oct. 19 4:10 p.m.
PARIS — L’Oréal’s third-quarter sales grew 4.5 percent in reported terms, dampened by travel retail in Asia, but bolstered by business in the group’s Dermatological Beauty and Consumer Products divisions.
Total sales for the maker of Lancôme, Kiehl’s and CeraVe products in the three months ended Sept. 30 came to 10 billion euros, up 11.1 percent on a like-for-like basis, in line with analysts’ consensus.
“Being in line is not something we usually write about L’Oréal,” wrote Bruno Monteyne, a Bernstein analyst in a note Thursday evening, after the Paris bourse closed and L’Oréal published its results.
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Monteyne highlighted how L’Oréal’s travel retail business dragged the group’s sales in North Asia down sequentially from plus 5.9 percent in the second quarter to minus 4.8 percent — against consensus of up 15 percent — in the third quarter of 2023, and that it resulted in a slowdown in the L’Oréal Luxe division, which posted a sales decline of 3.2 percent.
“While that is a drag, all other divisions and regions made up for this material drag,” he wrote.
Molly Wylenzek, an analyst at Jeffries, underlined L’Oréal Luxe’s organic sales growth of 3.2 percent — against 12.2 percent consensus — to 3.5 billion euros.
“While some slowing might have been expected in light of a small miss from LVMH’s perfume and cosmetics division (to which Luxe has been well-correlated) last week, we think this will come as a negative surprise to the market,” she wrote.
L’Oréal’s strongest beats were made by its Dermatological Beauty and Consumer Products divisions.
Dermatological Beauty’s sales in the third quarter were 1.62 billion euros, up 28.1 percent on a like-for-like basis, while consensus was 18.5 percent. Meanwhile, the Consumer Products division’s sales came in at 3.77 billion euros, representing organic growth of 13.4 percent, versus consensus’ 8.5 percent.
And the Professional Products division’s organic sales advanced 8.7 percent to 1.11 billion euros.
Nine-month sales at L’Oréal increased 9.4 percent in reported terms to 30.58 billion euros. On a like-for-like basis, they were up 12.6 percent.
L’Oréal estimates the overall beauty market has been growing by 9 percent so far in 2023.
Nicolas Hieronimus, chief executive officer of L’Oréal, said during a call with analysts and journalists Thursday evening that the company has the capacity to outperform the market, and to compensate or offset temporary pockets of weakness, thanks to the extended footprint of the group’s regions and divisions, as well as its agility to reallocate resources.
Many questions surfaced about China, from which Hieronimus had just returned. He noted how people say it’s been slow to recover, flattish after nine months.
“But L’Oréal continues to outperform,” Hieronimus said. “That’s the result of a great online activity, good offline comeback on the market, where consumers are still a bit shy in their spending. We are achieving record shares.”
Concerning travel retail in China, the executive pointed to a new consumption paradigm following the rest of Chinese governmental policies regarding the channel, including a crackdown on daigou, the informal cross-border market trade involving people buying products abroad to then resell them in China at a higher price.
“We have inventory to reduce,” said Hieronimus, adding that has been a focus over the summer.
“We’ve actually gained a little bit of share in sell-out, but it’s in a lower-sell-out.”
He said the issues L’Oréal has with travel retail are circumscribed, limited to travel retail in Asia — particularly the Chinese island of Hainan and South Korea — and temporary. Hieronimus expects the group’s inventory reduction to continue in the channel through year-end.
He reiterated L’Oréal’s high ambitions for China, where the company’s brands are not yet wholly distributed.
The executive said the market remains very dynamic in North America, where L’Oréal sales grew 12.6 percent in the first nine months of 2023. That was particularly bolstered by makeup and fragrances, categories growing by double digits, and good contributions from skin and hair care.
He said in the zone all four divisions had strong performances, with Dermatological Beauty in the high 20s, Luxe in the mid-teens, Consumer Products in the high-single digits and Professional Products in midsingle digits sales-growth-wise.
Lancôme’s success on Amazon in the U.S. was lauded.
“It’s a great start,” Hieronimus said. “What’s interesting is it’s particularly good on makeup.”
He described the Lancôme team as having created a shopping experience on the platform worthy of the brand equity.
“Regarding consumers, we see that the first numbers are that around 75 percent are new to the brand,” said Hieronimus, adding: “Through a new distribution channel, with a brand that’s already quite well-known, you can truly reach new consumers and increase your penetration. So it’s good news.”
A question was raised about ambitions for Aesop, the Australian luxury beauty brand L’Oréal began operating six weeks ago, including when EBIT margin might be in line with the rest of the brands in L’Oréal Luxe.
Hieronimus said that in September, Aesop posted strong top-line growth of more than 17 percent.
“China is the number-one growth opportunity for Aesop,” he said. “It’s the very beginning.”
Regarding profitability, and based on the numbers L’Oréal has that are being fine-tuned, Hieronimus said: “We know that Aesop will have a 25 basis-points dilution effect on a 12-month rolling period for the group.
“Overall, even though the objective is also to progressively improve its profitability, we must not forget that as [Aesop] is a retail brand, the profitability is calculated on consumer priced numbers, not on wholesale prices,” Hieronimus said. “But considering the growth potential, I think it will be very beneficial to the earnings per share of L’Oréal in the years to come.”
At the start of the call, it was announced that Eva Quiroga, currently deputy director investor relations at L’Oréal, will step into the role of director of investor relations at year-end. She is to succeed Françoise Lauvin after 14 years in the position. Analysts extended their many thanks to Lauvin for her longstanding help.
Also on Thursday, L’Oréal said it would cease commercializing Decléor, a French beauty brand it acquired in 2014.