(News Bulletin 247) – The cosmetics group reported a 5.3% increase in its revenues in comparable data in the second quarter, slightly below expectations. Dermatological beauty suffered as did North Asia.

Earnings season is proving difficult for consumer goods companies, including luxury goods, Nestlé, which lowered its forecasts last week, and Procter & Gamble, which disappointed Wall Street on Tuesday.

In this deleterious context, L’Oréal is limiting the damage. The cosmetics group delivered its first-half results on Tuesday evening.

Scrutinized with the greatest vigilance by the market, the group’s growth in the second quarter alone stood at 5.3% in comparable data, at 10.88 billion euros, marking a slowdown compared to the 9.4% achieved over the previous three months.

That’s a bit short of expectations, with the consensus calling for like-for-like growth of 5.6%. Jefferies notes, however, that buy-side expectations, or investors’ expectations, were probably more cautious.

On the Paris Stock Exchange, L’Oréal shares rose 1.6% at the start of trading this Wednesday.

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Luxury is recovering

By division, L’Oréal’s underperformance compared to expectations is entirely explained by the much weaker than expected dynamics of dermatological beauty (Vichy, La Roche Posay). This division recorded a growth in comparable data of 10.8% when analysts were expecting 17.4%. “The big miss in dermatological beauty is worrying, given the impressive dynamics that this division has experienced until now,” underlines Royal Bank of Canada.

However, the other divisions exceeded expectations, with in particular the “luxury” division (for example Lancôme, Valentino or Yves Saint Laurent perfumes) which accelerated its growth to 2.8% in comparable data, against 1.8% in the previous quarter.

By region, L’Oréal was particularly penalized by North Asia, a region that includes China, and where revenues fell by 2.4% in comparable data, after having fallen by 1.1% in comparable data in the previous quarter, while the consensus expected sales to be stable.

“In mainland China, the beauty market was negative in the second quarter on the basis of a high comparable, exacerbated by persistently low consumer confidence,” L’Oréal explained. Weighed down for several quarters by the fight against gray market resellers (“daigous”), “travel retail” (sales in airports) continued to weigh on growth in the region. But L’Oréal indicated that it had seen signs of gradual improvement.

Europe defies “gravity”

North American growth came in at 3.4% versus consensus of 3.6%. In contrast, Europe “continues to defy gravity,” Jefferies notes, with like-for-like growth of 9.7% versus expectations of 8.2%.

Over the first half of the year, L’Oréal’s like-for-like growth stood at 7.3%.

Operating profit rose 8% to €4.6 billion, while the corresponding margin came in at 20.8% compared to 20.7% a year earlier, in line with expectations. However, the improvement in this margin occurred as advertising and promotion expenses as a proportion of sales fell by 40 basis points (0.4 percentage points), analysts noted.

L’Oréal’s net profit stood at 3.66 billion euros compared to 3.36 billion euros a year earlier.

“Overall, the results are not excellent,” Royal Bank of Canada said. But they are sufficient to allow L’Oréal to satisfy the market.