Paris, France – In the upcoming third-quarter earnings report, L’Oreal (OREP.PA), the renowned cosmetics and skincare conglomerate, is poised to unveil robust sales figures driven by its portfolio of brands, including L’Oreal Paris, SkinCeuticals, and CeraVe. The company expects that the surge in purchases, particularly in China, will significantly contribute to its quarterly performance.
As L’Oreal prepares to disclose its Q3 results, experts predict a remarkable 11.5% increase in overall sales on an organic basis compared to the previous year, according to a consensus cited by Barclays. In particular, the company’s sales in North Asia, primarily attributed to mainland China, are projected to rise by 14.4%.
Despite these optimistic expectations, investors are closely monitoring any signals that might suggest Chinese consumers are shifting their preferences towards more affordable or locally-produced products. Iain Simpson, an analyst at Barclays, expressed concerns about the possibility of a slowdown in China, emphasizing, “Investor nervousness around a China slowdown feels high.” Recent disappointing reports from luxury giants like LVMH (LVMH.PA) and Estee Lauder (EL.N) have fueled apprehensions about L’Oreal’s outlook.
L’Oreal’s expansive presence in China encompasses a range of brands, from Maybelline to the local label Yuesai, and high-end Lancome. Last year, it held the largest share of China’s $78.9 billion beauty and personal care market.
Although L’Oreal’s shares have outperformed its rivals, they have still seen a decline of approximately 9% in the last six months, in contrast to a 45% drop for Estee Lauder.
As Europe and the United States experience a deceleration in post-pandemic spending, China’s recovery remains uneven, dashing hopes for a robust rebound in consumer spending. The recent third-quarter sales report from LVMH, which showed a slowdown in the growth of perfumes and cosmetics sales from 16% to 9% compared to the previous quarter, has led investors to recalibrate their expectations for high-end market spending.
JPMorgan analysts have modestly lowered their estimate for L’Oreal’s full-year sales growth to 12.1% on a like-for-like basis, attributing this adjustment to a slowdown in North Asia. Additionally, concerns regarding slower growth in China and heightened competition from local brands prompted Deutsche Bank to downgrade L’Oreal to a “sell” rating last month. Analysts from Deutsche Bank pointed to the decrease in imports of cosmetics and skincare products in recent years, indicating that the challenges L’Oreal faces in China might be a prolonged issue.
Chinese cosmetic brands have been gaining market share by tailoring their offerings to align with local consumer preferences. Bernstein analysts noted recent growth in labels such as Hangzhou-based Proya, Guangdong Marubi’s Passional Lover, and Kunming-based Botanee’s Winona. This shift is reflected in the upcoming Singles’ Day sale on November 11, where domestic products are expected to comprise over 40% of the offerings, doubling from the previous year, as reported by GF Securities.
Javier Gonzalez Lastra, portfolio manager of the Tema Luxury exchange-traded fund, which includes L’Oreal among its top holdings, commented on this shift, stating, “Chinese are happy to go more than before with local brands.” However, he also noted that L’Oreal, with its diverse product range, is well-prepared to compete across the spectrum, aligning with the views of analysts at Bernstein.
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