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L’Oréal reported disappointing sales in the third quarter as demand for skincare and make-up waned in the French beauty group’s Chinese market.
Sales at the group, whose brands include Garnier, La Roche-Posay and Kiehl’s, grew 3.4 per cent on a like-for-like basis in the three months to September 30, reaching €10.28bn, significantly below analyst estimates of a 6 per cent rise.
The third-quarter figures marked a further slowdown from the second quarter, in which sales grew 5.3 per cent on a like-for-like basis, slowing from 9.4 per cent growth in the first quarter.
Like-for-like sales in north Asia, which mainly constitutes China, plunged 6.5 per cent — well below the consensus estimate of a 2.9 per cent rise.
The French beauty giant’s earnings are seen as a bellwether for the health of the global beauty industry, which has fallen victim to weak demand, particularly in China, where consumer confidence has cratered alongside the country’s housing slump.
“The situation in the Chinese ecosystem has become even more challenging,” said chief executive Nicolas Hieronimus. “But we believe in the future of this market and hope that the governmental stimulus will help improve consumer confidence.”
Sales in China have also been hit by a government crackdown on daigou, shoppers who buy cosmetics in lower-tax areas in order to sell them for a profit in mainland China.
Last week luxury behemoth LVMH reported weaker than expected sales on the back of the Chinese slump, prompting shares in the group and its peers Cartier, Hermès and Kering to tumble.
The L’Oréal growth shortfall was also driven by a heavy sales miss in its higher-end dermatological beauty division, which includes brands such as SkinCeuticals and CeraVe. Sales grew 0.8 per cent in the third quarter, compared to an expected 10.8 per cent rise.
The world’s biggest beauty company by sales, L’Oréal has for the past three years enjoyed healthy profits as a result of the “lipstick effect”, in which consumers opt to buy small-ticket luxury items even as they cut back on everyday goods as the cost of living has soared since the Covid-19 pandemic.
However, the gloss has started to come off the high-margin “prestige” beauty category, which has been outpacing sales growth of mass-market beauty, in a sign that even higher-income consumer spending is faltering.
“The last time L’Oréal reported quarterly organic sales growth lower than this was Q3 2020 in the darkest days of Covid,” wrote RBC Capital analyst James Edwardes Jones, although he added the group was still outperforming the rest of the beauty market.
In North America, like-for-like sales rose 5.2 per cent, better than an anticipated 3.7 per cent. European sales were slightly below expectations, growing 5.6 per cent.
At the end of June, Hieronimus tempered expectations for growth in the global beauty market, saying he expected 4.5 to 5 per cent compared with the 5 per cent previously forecast.
Shares in the beauty group, which reported after the close of the French market, have fallen about 17 per cent so far this year. Bernstein’s Callum Elliott said: “For such a well-loved name, the concurrent slowdown across the main growth drivers of the business risks meaningfully intensifying fears around the long-term sustainable growth rate, and we expect the stock to react accordingly.”
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