Luxury cosmetics and China drive sales bounce at L'Oreal

Booming demand for L’Oreal’s luxury cosmetics brands like Lancome, particularly in China, helped boost the company’s first-quarter sales, offsetting a more wobbly performance in the group’s mass market division.

Cosmetics companies are benefiting from strong appetite for skincare products like anti-ageing treatments, after riding a make-up boom in the past few years, spurred by young consumers seeking to look good on social media.

High-end cosmetics and treatments have proved particularly popular, and L’Oreal said this trend had accelerated at the start of 2018, driven largely by Chinese customers. Its luxury brands also include Yves Saint Laurent and Kiehl’s.

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“The luxury market is really flying right now,” Chairman and Chief Executive Jean-Paul Agon told a conference call with analysts on Thursday.

Chinese shoppers have spearheaded a broader rebound in luxury goods sales from handbags to shoes, sparking upbeat outlooks from top industry players such as France’s LVMH.

Agon said Chinese appetite for cosmetics all along the price scale was robust.
“This appetite for beauty products could really be sustainable for a while,” he said.

So far, trade tensions between China and the United States have shown little sign of affecting consumer sentiment.

L’Oreal, the world’s biggest cosmetics firm, said group sales grew 6.8 percent from a year earlier on a like-for-like basis, which removes the effect of currency swings and acquisitions or disposals.

That beat expectations for a 5.6 percent rise, and marked the strongest pace of quarterly growth in eight years.

“The strong end to 2017 has certainly continued on into 2018,” analysts at Berstein said in a note.

DIGITAL PUSH

The company still faces hurdles, however, including from a strong euro that affects revenues made in other currencies and converted back.

On a reported basis, L’Oreal sales were down 1 percent in the first quarter at 6.78 billion euros ($1.23 billion), reflecting the hit from foreign exchange effects.

L’Oreal’s largest division, meanwhile, which makes mass market products and is home to labels like Maybelline, is going through more of a rough patch. It reported modest quarterly sales growth of 2.6 percent, slightly less than expected.

Agon said he was confident the division’s performance would pick up this year, saying the mass market brands were already doing well in China and selling better in the United States, even though there were few signs of improvement in France.

L’Oreal, which has been bumping up its digital business, said online sales were growing fast and accounted for 8.8 percent of all revenues in the first quarter.

The company made its first tech acquisition in March with Canada’s ModiFace, which develops services such as virtual testing for make-up or hair colors.