‘Worse-than-expected turbulence’ in China’s local and travel retail markets slows L’Oréal’s growth: Moodie Davitt report

French beauty house L’Oréal slowed third-quarter sales growth to +2.8% year-on-year (as reported) to €10,284.9 million ($11,105.5 million) amid challenging trading conditions in China, including offshore duty-free trade on Hainan Island. Revenue for the nine months for the period ended September 30 increased by +6% to €32,405.7 million ($34,991.2 million).

L’Oréal Luxe, the group’s largest domestic and travel retail division, posted strong global growth (+8% in the third quarter and +5.3% in the nine months), outpacing a continued decline in a key travel retail segment in mainland China and Asia. beauty sector.

Sales in North Asia fell -3.5% in the nine months and -4.4% in the third quarter. In mainland China, the beauty market, already negative in the second quarter, continued to deteriorate due to low consumer confidence.

Sales problems in Hainan remain

L’Oréal said travel retail in North Asia returned to growth in the third quarter, but sales in Hainan in particular remained under pressure. In Japan, the group has surpassed a dynamic market supported by both locals and tourists to become the number one foreign group in the beauty industry.

Speaking on the earnings call, CEO Nicholas Hieronymus commented: “Stronger-than-expected turbulence was experienced in North Asia. In the Chinese ecosystem, markets became even more negative, especially in luxury goods, both domestically and in travel retail, where traffic was not converting into purchases. We have been encouraged by the government’s recent economic stimulus measures and hope they will lead to a gradual improvement in consumer confidence.”

Earlier in the company’s earnings call, Hieronymus said: “We achieved strong growth of +6% in the first nine months, well balanced between value and volume, despite numerous shocks that negatively impacted our third quarter.

“As expected, global beauty market growth normalized during the year. In developed markets, this was driven by a gradual decline in prices after two years of strong inflation; Despite this, underlying market trends remain resilient in Europe and North America, as well as emerging markets.

“Overall, the beauty category continues to grow, including in units, further demonstrating its resilience and long-term potential. L’Oréal continues to outperform thanks to our innovation strength, the flexibility of our teams and our ability to reallocate our resources to new engines of growth.

“In a context that continues to be characterized by economic and geopolitical uncertainty, we remain confident that we can deliver another year of sales and operating profit growth and are preparing our own beauty incentive plan for 2025.”

Asked on P&L how he sees market growth in mainland China and the offshore duty free sector on Hainan Island, Hieronymous replied: “It’s broadly consistent, whether it’s in Hainan or mainland China… our assessment is that the market as a whole was slightly positive in the first quarter.” , then moved to negative mid-single digits in the second quarter and higher mid-single digit declines in the third quarter.

“And yet the part of the market that fell the most in the third quarter was the luxury part of the market, which was negative in the mid-teens. So this is really a general trend in the Chinese market. The only sector that was slightly positive in the third quarter was mass markets, where there were a number of consumers who were probably moving away from luxury goods and into some of these brands.”

North Asia travel retail ‘reboot’ takes longer than expected

Regarding offshore duty-free trading, Hieronymous said: “We have confirmation of what we have announced and discussed for half a year…sales in Hainan remain at around 30.”

“That’s why there’s a lot of traffic here, a lot of tourists. There were a lot of tourists during Golden Week, but, by the way, they are not converted into our categories or any others. So a year that was again negative remains very negative.

“So actually the reboot of the travel retail market in Asia is taking longer than we had hoped. That’s why I talked about unexpected turbulence, because that’s something I was hoping to improve over the summer.

When asked for more precise figures on L’Oréal’s travel retail activities in mainland China and Asia, Hieronymus declined to provide more details, but noted: “We are increasing our share in travel retail, but that doesn’t mean anything because we are increasing our share in travel retail.” trade.” very negative market.” ✈