(News Bulletin 247) – The cosmetics and perfumes group posted growth of 11.1% on a comparable basis in the third quarter, narrowly missing consensus expectations. The group suffered in Asia from a poor performance in “travel retail” due to the tightening that China has made on daigou, these resellers on the gray market, in Hainan. But the stock is holding up thanks to good performances in North America and Europe.

In more than one way, L’Oréal’s third quarter activity is particularly interesting. Firstly because the publication of the group, second market capitalization in Paris and fourth in Europe, comes at a time when the market is worried about global demand for discretionary goods.

Then because the cosmetics specialist’s figures by region are ultimately very far from the consensus. Which in reality illustrates L’Oréal’s ability to quickly reorganize its resources to seek growth wherever it can be found. To the point of taking analysts by surprise.

The fact remains that this reaction force was not enough and L’Oréal thus (barely) missed the mark. From July to the end of September, the company saw its turnover rise to 10 billion euros, up 4.5% year-on-year in published data and 11.1% like-for-like. However, the consensus of analysts cited by Royal Bank of Canada expected a figure of 11.3%. “For as long as we can remember, this is the first time that L’Oréal has failed to meet expectations,” notes the Canadian bank.

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The daigou in question

The difference is entirely explained by the poor performance of North Asia, one of the group’s most important regions (around 20% of revenues) where the company recorded a significant drop in its activity, of 4.8 % on a comparable basis, while the consensus expected growth of 15%, a final difference of 19%.

The company explains that, in the region, travel retail (sales in airports or train stations) has been penalized by “the change in policy towards daigou”. “A single factor is at the origin of (the disappointment, Editor’s note), namely the reset of the Hainan daigou,” also observes Royal Bank of Canada.

As independent research firm AlphaValue explains on its blog, the word “daigou” is a Chinese term that refers to “individuals or groups of exporters outside of China who purchase goods for Chinese customers through illegal means”. The consulting firm Daxue Consulting details their operation in a post: the daigou obtain their supplies abroad, for example in duty free stores (the firm cites South Korea) and also benefit from discounts and reductions. They either place orders directly or through intermediaries (such as travel agencies) to obtain very low prices before reselling their goods at a higher price in mainland China or in Chinese duty free shops.

Daigou are particularly linked in China to the province of Hainan, which has seen a surge in its activity. Hainan is actually a Chinese island with an attractive climate that is a popular vacation spot for the Chinese. With the outbreak of the pandemic and the impossibility for Chinese tourists to travel to certain countries, such as Thailand, the attractiveness of Hainan has strengthened and tourist spending in duty free on the island has exploded in recent years. last years.

Except that in the spring, the Chinese authorities seriously tightened the screws on the very gray daigou trade. “In order to better preserve brand values ​​and normalize business activities, Hainan authorities implemented “anti-smuggling measures” in May to crack down on Daigou businesses, and several Hainan retailers were arrested to highlight the seriousness of the initiative,” AlphaValue explained in August.

Other regions explode consensus

“This reinforced control had several impacts on L’Oréal’s activity during the first half of the year and could continue to have an impact on stocks in the months to come,” continued the research office. Rightly so.

“This situation, although much more disruptive than we anticipated, appears relatively temporary,” notes Royal Bank of Canada. Quoted by Bloomberg, L’Oréal management explained during a conference call that this impact of the offensive against daigou was limited and anticipated an improvement next year.

On the Paris Stock Exchange, L’Oréal nevertheless fell by only 0.6% to 383.85 euros around 10:30 a.m., after opening down more than 3%. The stock is therefore holding up quite well, especially since the CAC 40 is down almost 0.8%.

Once you get past the disappointment in Asia, the other elements of the publication are actually very satisfying. All regions except North Asia exceeded expectations, especially North America. L’Oréal recorded growth of 11.8% on a comparable basis when the consensus was only expecting growth limited to 5.9%. Ditto for Europe where turnover jumped 16.2% against 11.2% expected by analysts.

“Once again, L’Oréal has been able to redirect its resources towards more promising markets,” notes Royal Bank of Canada.

“L’Oréal has gained significant market shares in all areas, with reassuring performances in North America and Europe in particular,” appreciates Stifel.

“The bottom line for us is that L’Oréal’s strong and diverse beauty portfolio allowed the group to offset pockets of temporary weakness in North Asia in the third quarter and record another quarter of growth in two turnover figures in volume,” continues the bank.

L’Oréal remains a stock whose valuation constitutes a subject of debate. But the publication of this third quarter in any case reminded us of the company’s agility and its diversification.