KEY POINTS

  • Strengthening Chinese demand underpinned a further acceleration in comparable sales growth during L’Oréal’s strong third quarter. Asia-Pacific comparable sales were up by one-quarter in 3Q18.
  • During the quarter, L’Oréal grew group comparable sales by 7.5%, which was well ahead of expectations.
  • Comp sales in Western Europe continued to be weak, but management commentary implied that this was no longer driven by softness in France.

3Q18 Trading Update

L’Oréal reported 7.5% growth in comparable sales in 3Q18, ended September 30, well ahead of the consensus estimate of 6.0% recorded by StreetAccount and above the 6.6% comp growth recorded in 1H18.

By segment, L’Oréal reported the following growth in comparable sales (which are based on a comparable structure and constant exchange rates):

  • Professional Products sales were up 1.5% versus consensus of 1.8%. This segment grew sales in all regions except Western Europe.
  • Consumer Products sales rose by 2.3%, compared with expectations of 3.0% growth. Management said that the L’Oréal Paris and Maybelline New York brands were “very dynamic.”
  • L’Oréal Luxe sales climbed by 15.6%, comfortably beating analysts’ expectations of 11.0%. Management pointed to an acceleration in the company’s facial skincare sales.
  • Active Cosmetics came in at 13.1%, ahead of consensus of 10.1%. Management noted “dynamic growth” in the division in North America and Asia.

By region, L’Oréal reported the following comp growth:

  • Western Europe, the company’s biggest region, was down 0.7%, broadly level with the 0.8% decline reported in 1H18. Management pointed to a market slowdown in the UK. In prior quarters, management frequently remarked that France was a tough market, but in 3Q18, it noted only that the Consumer Products division had been winning back market share in the country.
  • North America, L’Oréal’s second-biggest region, grew comp sales by 2.7%, versus 3.0% growth in 1H18.
  • The Asia-Pacific region was up by a very strong 25.8%, accelerating from 22.0% growth in 1H18 (when comp sales had already climbed from the low teens in FY17). Management remarked that the uptick in growth was driven by “strong demand from Chinese consumers.”
  • Latin America comp sales were up 1.3%.
  • Eastern Europe comp sales climbed by 11.7%.
  • In the Africa and Middle East region, comp sales were down 1.6%.

Outlook

Management reiterated that it expects L’Oréal to outperform the cosmetics market and achieve significant growth in comparable sales and an increase in profitability in FY18. Analysts expect the company to grow comparable sales by 6.1% in FY18 and total revenues by 2.3%. Consensus calls for a 3.6% increase in EBIT and a 7.8% increase in statutory pretax profit in FY18.


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