L'Oreal Reports Third Quarter Sales Decline

By Dominique Patton
PARIS (Reuters) – French cosmetics giant L'Oreal reported a rise in third quarter sales on Tuesday that missed expectations due to low consumer confidence in China, leading to diminished demand for beauty products.

The company, which owns brands such as Maybelline and Lancome, announced sales for the three months ending September reached 10.28 billion euros ($11.11 billion), reflecting a 3.4% increase on a like-for-like basis at constant exchange rates. However, this fell below a Visible Alpha consensus estimate of 6% reported by Jefferies.

According to analysts at RBC, "The last time L'Oréal (EPA:OREP) reported quarterly organic sales growth lower than this was Q3 2020 in the darkest days of COVID." Investors might take the scale and breadth of the miss negatively, Barclays analysts noted, adding that while nerves existed prior to results, the results were even weaker than feared.

L'Oreal's shares have plummeted 20% since June, losing about 50 billion euros in valuation due to worries over consumer spending in China. This North Asia region, largely reliant on China, represents a quarter of group sales. However, a property crisis along with high youth unemployment has weakened consumer spending, leading to a 6.5% sales decline in North Asia during the third quarter, worsening from a 2.4% decline seen previously.

CEO's Insight

Chief Executive Nicolas Hieronimus stated that the market's decline in China saw a drop in the high single digits in the third quarter, with the luxury segment suffering greatly, experiencing a dip of negative mid-teens. He remarked, "We are doing better than a very negative market, but it's not good enough."

Recently released economic data showed that China recorded its slowest growth since early 2023. Moreover, luxury brands like LVMH discussed the impact of dwindling consumer confidence, which L'Oreal also felt.

Sales for suncare and dermatological products have seen a decrease, with the company's Dermatological Beauty division slowing to 0.8% growth, down from 10.8% in the second quarter. Analysts from Barclays noted that while last year's figures included a 57 million euros insurance payout, the overall performance was disappointing.

To tackle these challenges, Hieronimus emphasized the need for new product launches to rekindle consumer interest, citing the importance of attracting younger GenZ consumers who have shifted towards other brands.

Growth in emerging markets outside China has also stalled. Sales in Europe, L'Oreal's largest region at a third of group sales, slowed similarly in the third quarter. Contrarily, the North American region fared better, showing a 5.2% sales increase, buoyed by strong demand in haircare and fragrances.

Looking ahead, the company aims to ramp up product launches next year, acknowledging the absence of post-pandemic tailwinds and inflationary pressures.