Beauty & Balance

L’Oréal’s Q1 Organic Sales Gains Beat Analysts’ Expectations

PARIS — L’Oréal’s first-quarter like-for-like sales rise of 6.8 percent in 2017 broadly beat financial analysts’ expectations.The world’s largest beauty-maker on Thursday said it registered sales of 6.78 billion euros in the first three months of 2017, which were down 1 percent on a reported basis, due to the negative impact of foreign currency exchange rates.“L’Oréal reported a significantly stronger than expected start for the year, as first-quarter like-for-like sales growth — the best in 24 quarters — came in well ahead of consensus and Deutsche Bank’s , undoubtedly making L’Oréal the best-in-class among European HPC (and staples) peers,” said Eva Quiroga, an analyst at Deutsche Bank.Still, analysts noted the broadening gap between L’Oréal’s best and worst performing businesses. The former camp included L’Oréal Luxe, which registered a 14 percent like-for-like gain — its highest quarterly advance in more than a decade.“At a regional level, growth in New Markets was also fantastic, at its highest level since third-quarter 2008, led by outstanding growth in Asia-Pacific ,” wrote Andrew Wood, an analyst at Sanford C. Bernstein & Co. LLC, in a note. “This means L’Oréal has delivered strong double-digit growth for three consecutive quarters, adding weight to the belief that the Emerging Markets are ‘back.’ Meanwhile, growth in North America was robust and ahead of expectations, but Western Europe disappointed somewhat.”“ have been reassured by management commentary that growth was bound to pick up in Consumer Products…and North America,” Quiroga said. “On that basis, and even prudently assuming some deceleration in L’Oréal Luxe, full-year 2018 like-for-like growth of 6 percent seems achievable, despite toughening comps.”For its part, L’Oréal said that for 2018 the group is confident it can outperform the market and achieve significant gains in like-for-like sales as it increases profitability. The group estimates the beauty market will be at least on a similar growth trajectory to what it was last year, when it rose between 4 percent and 4.5 percent.In the first quarter at L’Oréal, “category growth was strongest in skin care — positive since it is the number-one category — and perfumes — driven by both classic and new launches — slowing somewhat in makeup, but strong in China, and pedestrian in hair care,” outlined Quiroga.After the group’s quarterly sales were released following the close of the Paris bourse, L’Oréal hosted a wide-ranging call with financial analysts and journalists.During it, Jean-Paul Agon, the company’s chairman and chief executive officer, was asked about L’Oréal’s purchase of ModiFace, the Canadian provider of augmented reality and artificial intelligence technology for the beauty industry, which was revealed last month.“This is a completely new type of acquisition for us,” he said. “It’s the first time ever that we buy a tech company. ModiFace“And why did we do it?” Agon continued. “Because obviously we think that it will give us a very strong competitive advantage in the digital marketing of our brands and also in e-commerce, which means obviously that eventually ModiFace will work for all our brands — but only our brands.”Agon explained that a few contracts exist with some other partners, which L’Oréal will respect. “But the idea is to use the know-how, the savoir-faire, the expertise of ModiFace to boost the digital savviness of our brands,” he said.The executive was also asked about whether the recent news about Facebook’s data leaks is changing L’Oréal’s view on how it uses social media, and whether it could affect how the company allocates its marketing investments between digital and more traditional media.“We are always extremely cautious and careful about data privacy and the way that data is used,” said Agon, adding that the new situation will reinforce Facebook and other players’ caution when it comes to data privacy and management. “So based on that, we are not considering changing our policy regarding Facebook.“We think it’s a very useful media for us, and we keep partnering with them,” he continued. “But it’s clear also that we are one of their closest partners, and we want this partnership to be absolutely well-executed with the perfect respect for consumers.”Agon was queried, as well, about what he thinks accounts for the incremental gains in the U.S. luxury beauty segment, where L’Oréal’s business was growing slightly below the market and the Estée Lauder Cos. Inc.’s growth was approximately flat in the first quarter.The executive attributed it to “many new brands on the U.S. market. What we are seeing clearly are some other players, some other brands — indie brands — that are not part of large companies and that have been growing pretty nicely these past few months.”“I also would say that these indie brands take advantage of not having the same footprint as some other bigger players — for example, us….They don’t have a footprint in department stores, and so maybe for the moment they enjoy an easier walk than we do,” Agon continued.While it’s hard to predict whether big brands will go back to driving the luxury beauty market growth in the U.S., Agon said a fascinating case study is in a country like China.“What is really interesting in the past few quarters is that the brands that have gained the most in China have been the biggest brands,” he explained. “It’s true that there are less indie brands in China than there are in the U.S., but still what we are seeing with the development of the consumption, with the acceleration of digitization, with the increase of e-commerce, is that in fact big brands are becoming even more powerful.”L’Oréal has four of the top 10 brands in the country’s prestige beauty market — Lancôme, Kiehl’s, Giorgio Armani and Yves Saint Laurent.“They are getting more powerful year after year,” Agon said. “So I think there is a case the fact that even in a digital world and an e-commerce world, big brands have a big role to play.”

Source: Read Full Article