L’Oreal, the global leader in skincare and cosmetics, is poised for strong quarterly sales, with a significant boost expected from the Chinese market. However, concerns about the sustainability of this growth are emerging. As L’Oreal reports its third-quarter results, all eyes are on China, where a surge in sales is anticipated.
The French beauty giant is expected to achieve an impressive 11.5% year-on-year organic sales growth in the third quarter, with a substantial portion driven by soaring sales in North Asia, particularly mainland China, where sales are projected to grow by 14.4%.
Investors are closely monitoring signs that Chinese consumers may be shifting preferences towards more affordable or locally produced alternatives. Rising anxiety over a potential slowdown in China has been fueled by less optimistic reports from luxury conglomerates like LVMH and Estee Lauder, prompting concerns about the future outlook for L’Oreal.
L’Oreal boasts a diverse brand portfolio in China, from Maybelline to local label Yuesai and the high-end Lancome, which secured the largest share of China’s $78.9 billion beauty and personal care market last year. While L’Oreal’s shares have outperformed some competitors, they have still experienced a 9% decline in the past six months, in contrast to a 45% drop for Estee Lauder.
The post-pandemic spending spree in Europe and the United States is gradually waning, and China’s economic recovery remains uneven, resulting in lowered expectations for a robust rebound. Luxury conglomerate LVMH reported a slowdown in perfume and cosmetics sales growth in the third quarter, declining from 16% to 9% compared to the previous quarter.
Analysts at JPMorgan have slightly revised down their estimate for L’Oreal’s full-year sales growth to 12.1% on a like-for-like basis, primarily due to the slowdown in North Asia.
Deutsche Bank downgraded L’Oreal to a «sell» rating last month, citing expectations for slower growth in China and increasing competition from local brands. Import figures for cosmetics and skincare products have also seen a decline in recent years.
While Chinese cosmetic brands have been gaining market share by catering to local consumer preferences, L’Oreal’s diverse product range equips it to confront competition across various segments. As Chinese consumers increasingly embrace local brands, with a growing proportion of domestic products featured in major sales events like Singles’ Day, L’Oreal remains well-positioned to navigate these challenges.
In summary, L’Oreal faces both challenges and opportunities in the evolving Chinese market, and its brand diversity and adaptability are key strengths that position it for continued success.
