(News Bulletin 247) – The cosmetics group’s like-for-like growth clearly exceeded expectations in the first quarter. If China and travel retail continued to suffer from the fight against the gray market, Europe and the United States recorded strong growth.

L’Oréal is restoring its image. When it published its annual results in February, the company was harshly punished by the market for having – a rare occurrence for it – clearly disappointed expectations regarding its growth.

The situation was well corrected at the start of 2024. The cosmetics group thus published vigorous activity for the first quarter.

On the Paris Stock Exchange, L’Oréal shares jumped 5.3% around 9:30 a.m. to 445.85 euros and signed the largest increase in the CAC 40, which fell 0.8%.

From January to the end of March, the group generated revenues of 11.245 billion euros, up 8.3% based on published data and 9.4% excluding currency and scope effects.

L’Oréal has overtaken analysts. According to a consensus cited by Jefferies, expectations were only 6% on a comparable basis.

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Healthy North America

Jefferies emphasizes that growth is, of course, boosted by an exceptional element, namely the implementation in the “professional products” division (for example for brands for hairdressers) of new IT systems in North America. L’Oréal judges that these new systems had an impact representing half of the growth of this division over the quarter (10.7%). Jefferies estimates the impact in value at 130 million euros.

L’Oréal’s publication remains no less robust. Excluding this exceptional item, like-for-like growth remains high, at 8.1% according to calculations by Royal Bank of Canada.

In North America, like-for-like growth stood at 12.3%. Here again, Royal Bank of Canada calculates that even if the impact of new IT systems is taken out, this region would still show an increase of 7.5%.

“This figure is not as impressive as the 12.3% organic growth recorded in North America would suggest, but it is still above expectations and impressive when considering that (German, Editor’s note) Beiersdorf highlighted the decline of the American skin care market at the start of the week”, underlines the Canadian bank.

Europe to the rescue

Outside of North America, Europe posted remarkable growth, of 12.6% on a comparable basis, or 5.4 points better than the consensus.

“All countries are growing, with particularly remarkable performances in the clusters (sales at home as well as abroad, editor’s note) Germany-Austria-Switzerland, Spain-Portugal and United Kingdom-Ireland”, details L’ Oreal.

“Europe was much better than expected and interestingly the most premium categories (premium perfume, skincare and haircare) showed the strongest momentum, underscoring the robustness of the consumer of beauty products”, analyzes Royal Bank of Canada. Europe has “come to the rescue”, summarizes Jefferies for his part.

The black spot remains, namely China, which is included in the “North Asia” region. This region recorded a decline in like-for-like sales of 1.1% in the first quarter, while analysts expected a less pronounced decline of 0.3%. This drop also explains the slight failure of the group’s “luxury” division (Lancôme, the Aesop skincare brand, Prada perfumes, etc.), which saw its sales increase by 1.8% on a comparable basis compared to 2% expected by consensus.

L’Oréal is still penalized by the weakness of “travel retail”, i.e. sales in train stations and airports, which has suffered for several quarters from the Chinese government’s offensive against the gray market, the “daigou”, launched in spring 2023 .

These are resellers who use illegal means to sell their merchandise to Chinese customers. 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. These daigous are very present on the island of Hainan, a favorite vacation spot for Chinese consumers and where duty free purchases have exploded in recent years due to the pandemic.

“But after ?”

Ultimately, L’Oréal’s publication satisfies analysts. Royal Bank of Canada evokes “a strong quarter” which “should be taken positively by the market in view of the recent weakness of the action in recent months”.

“In the context of a few noisy weeks on the beauty theme and fears of a market slowdown, this result should lead to a strong positive reaction from the stock,” Jefferies wrote in a note published Thursday evening .

“This encouraging start to the year strengthens our confidence for” 2024, underlines the independent research office AlphaValue. “

“In our opinion”, L’Oréal’s high growth in the first quarter, “despite a difficult market context in China, demonstrates the quality and power of L’Oréal’s economic model”, judges Stifel, who notes that “its performance in comparable data beat that of LVMH’s Perfumes & Cosmetics division (+7%).

This “very dynamic first quarter runs counter to recent caution”, agrees Oddo BHF. Deutsche Bank wants to be more measured. “It’s impressive, but after…”, headlines the German bank in its note.

The establishment emphasizes that L’Oréal management was cautious during the conference call, stating “that they will see an annualization of the strong price increases in the second half of the year, that underlying demand in China remains moderate and that the American mass market is under some pressure.”

Deutsche Bank also continues to perceive structural questions about Chinese growth.