L’Oreal sales surge on rising cosmetics demand in Europe, US

L’Oréal SA stock surged Friday after reporting better-than-expected first-quarter sales as strength in Europe and North America helped offset a slowdown in shopping by Chinese travelers. 

Shares of the French cosmetics group, which owns Lancôme, rose as much as 6% in early trading in London after like-for-like sales rose 9.4% in the first three months of the year, helped by strong demand for its mainstream consumer and dermatological products. The increase was well ahead of analysts’ average expectation of a 6.6% rise.

Revenue from North Asia, which includes China and South Korea, also held up better than feared, with comparable sales down 1.1% — less than the expected 2.4% drop. In February, L’Oreal shares had experienced a sharp decline following a dip in spending by Chinese consumers, who have become more discerning on what they spend their money on.

L’Oréal’s American depositary receipts has surged as much as 8.3% in New York trading on Thursday after the positive update, the most since November 2022, while shares of rival Estee Lauder Cos. gained as much as 6.2%.

L’Oréal Chief Executive Officer Nicolas Hieronimus said 2024 was off to a “very good start,” citing “unbelievably strong” growth in Europe and a “gradual recovery” in North Asia. On a call with analysts, he said North Asia, the only region not to record double-digit sales growth, is becoming “progressively less bad.”

In mainland China, where the beauty market remains sluggish, L’Oréal sales rose 6.2%, Hieronimus said. Changes in policy regarding daigous — the practice of Chinese tourists buying on behalf of others when traveling abroad — continued to weigh on travel retail, he said, but projected a recovery by the end of the first half. 

Comparable sales in L’Oréal’s dermatological beauty unit, which has been a main driver of growth and includes labels such as CeraVe and La Roche-Posay, grew by nearly 22%, topping analyst estimates. Hieronimus said sales in this division have risen for 15 consecutive quarters. 

Amid a noisy few weeks on beauty with fears of a market slowdown, this result were positive, said Molly Wylenzek, an analyst at Jefferies. She said the better-than-expected performance in North America, where like-for-like sales rose 12%, is the “bigger surprise, defying weakening scanner data and downbeat retailer commentary.” 

The strong performance comes after Ulta Beauty Inc. stock tumbled after executives signaled cooling consumer demand for beauty products.

L’Oréal’s quarterly sales figure included a “phasing impact” for the implementation of new IT systems, the company said. On an adjusted basis, growth was 8.1%, which was still ahead of expectations.

Hieronimus reiterated that for the full year, L’Oréal expects about 5% like-for-like growth. –BLOOMBERG