(News Bulletin 247) – The beauty products and cosmetics group published results below expectations. As in the third quarter, the group was penalized by Asia, due to the tightening that China has made on “daigou”, resellers who use illegal means to obtain supplies.

In 2023, L’Oréal delighted investors, so much so that its title gained 35% to rank eighth in the CAC 40. The beauty champion then posted the best performance among the “KOHL” (Kering, L’Oréal). Oréal, Hermès, LVMH).

However, the 2024 financial year promises to be more complicated for L’Oréal. And the latest publication from the French group confirms the group’s difficulties encountered in North Asia, one of the group’s most important regions.

Over the last months of 2023, the owner of the Lancôme, Garnier and Maybelline brands recorded a significant drop in its activity in the region, of 6.2% on a comparable basis, while the consensus cited by Royal Bank of Canada (RBC ) expected modest but positive growth of 0.4%. The gap is therefore significant with analysts’ projections.

North Asia, a publishing black spot

As in the third quarter, the group once again suffered in Asia from poor performance in “travel retail” due to the tightening that China has made on “daigou”, these resellers on the gray market, Hainan.

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.

In Europe, the disappointment is also palpable. The group, which stood out in the region in the 3rd quarter (+16.2%), suffered the blow and saw its activity slow down to 11.6% compared to 14.6% expected by analysts in the fourth quarter. “Europe also did not meet expectations satisfactorily, having recorded significant progress in previous quarters,” laments RBC.

Other regions exceeded expectations, notably Latin America. L’Oréal recorded growth of 23.4% on a comparable basis when the consensus was expecting an increase of 19.3%. But this satisfactory element of the publication cannot hide the disappointments in North Asia and Europe.

Moreover, this concern is highlighted by RBC. “We are not sure that other regions can sustainably compensate for the challenges in Asia, given the underlying weakness of the market and the strong penetration of L’Oréal in China. This series of results reinforces this fear,” explains the bank Canadian.

Between October and the end of December, L’Oréal saw its turnover rise to 10.61 billion euros, up 6.9% on a comparable basis. However, the consensus of analysts cited by Royal Bank of Canada expected a figure of 9.1%. For the Canadian bank, L’Oréal’s organic sales growth was therefore “disappointing” in the 4th quarter. “This is the opposite of what we have become accustomed to over time,” continues the Canadian bank.

On the Paris Stock Exchange, L’Oréal’s disappointing publication was logically sanctioned. The biggest drop in the CAC 40, the stock fell 6.8% around 10:00 a.m. and suffered its biggest decline since the end of October 2022 (-5.80%).

Investors had already reacted negatively Thursday evening on Wall Street, L’Oréal having revealed its accounts after the close of the European markets. In New York, the ADR – certificates of deposit which allow investors based in the United States to invest in foreign groups – already fell by 6.5% on Thursday evening.

A record margin but…

Over the whole of 2023, the group saw its revenues reach 41.18 billion euros, organic growth of 11%. L’Oréal is pleased to have achieved a third consecutive year of double-digit organic growth. But if we look a little closer, L’Oréal also narrowly missed the consensus both on sales (41.493 billion euros) and on organic growth (+11.6%). And the group is doing worse than in 2022, which saw L’Oréal sales jump 18.5% based on published data and 10.9% like-for-like.

Operating profit also turned out to be slightly lower than expected at 8.143 billion euros compared to the 8.207 billion expected by analysts, according to RBC. The corresponding margin rate, at 19.8%, is at a “record” level and is in line with market expectations. Last line of the income statement, the group’s share of net profit stood at 6.184 billion euros, up 8.4% over one year.

As usual, L’Oréal has not given any quantified objectives for the current year. The company says it is optimistic “about the prospects of the beauty market, and confident in its ability to outperform it to achieve another year of growth in turnover and results”.

L’Oréal has reaffirmed its ambitions in “beauty tech”, that is to say in beauty technology thanks to artificial intelligence. The French group also opened the ball at CES 2024, the high mass of innovation which is held every year in Las Vegas.

“More than ever, L’Oréal is looking to the future: a future in which beauty tech will have a central place. Beauty tech will shape our industry and allow us to further establish our leadership,” continues Nicolas Hieronimus, director general of L’Oréal.

But the markets are not sensitive to the prospects delivered by L’Oréal. Like UBS, they fear the consequences on society of a normalization of demand in the world of beauty.