By Mimosa Spencer
PARIS (Reuters) – L’Oreal’s stable of skincare and cosmetics labels, including L’Oreal Paris, SkinCeuticals and CeraVe, will likely give a solid lift to the company’s quarterly sales with purchases expected to have accelerated in China.
The French company reports third quarter results on Thursday, with overall sales seen up 11.5% from a year earlier on an organic basis, according to a consensus cited by Barclays, and sales in North Asia, mostly accounted for by mainland China, up 14.4%.
But investors will be looking for any sign that Chinese shoppers are turning to less expensive or local products.
“Investor nervousness around a China slowdown feels high,” said Iain Simpson, an analyst with Barclays, noting that disappointing reports from LVMH and Estee Lauder had raised concerns about the outlook for L’Oreal.
L’Oreal, which in China sells brands ranging from Maybelline to local label Yuesai and high-end Lancome, accounted for the biggest share of the country’s $78.9 billion beauty and personal care market last year.
Its shares have outperformed rivals but are still down around 9% in the last six months, compared to a 45% drop for Estee Lauder
A post-pandemic spending splurge is slowing in Europe and the United States, and an uneven recovery in China has dashed hopes for a strong rebound there.
Last week’s third quarter sales from luxury bellwether LVMH, which showed perfumes and cosmetics sales growth slowing to 9% from 16% in the previous quarter, prompted investors to rein in expectations for spending at the high end of the market.
Analysts at JPMorgan slightly lowered their estimate for L’Oreal’s full-year sales growth to 12.1% on a like-for-like basis, citing a slowdown in North Asia.
Also citing expectations for slower growth in China and increasing competition from local brands, Deutsche Bank last month downgraded L’Oreal to “sell”. Its analysts pointed to lower imports of cosmetics and skincare products in recent years.
“We don’t see China’s issue as short lived,” they said, adding that slower than expected GDP growth would likely impact the rate of growth of the middle class and the rate of “premiumisation”.
Chinese cosmetic brands have gained market share as they adapt to local consumer preferences, with Bernstein pointing to recent growth in labels including Hangzhou-based Proya, Guangdong Marubi’s Passional Lover and Kunming-based Botanee’s Winona.
The proportion of domestic products featured in the upcoming Singles’ Day sale on Nov. 11 will roughly double from last year to more than 40%, according to GF Securities.
“Chinese are happy to go more than before with local brands,” said Javier Gonzalez Lastra, portfolio manager of the Tema Luxury exchange traded fund which counts L’Oreal among its top holdings.
However, L’Oreal with its diverse product mix is well-equipped to meet competition across the spectrum, Gonzalez Lastra said, concurring with analysts at Bernstein.
(Reporting by Mimosa Spencer, additional reporting by Sophie Yu in Beijing; Editing by Kirsten Donovan)
