China’s Craving for Premium Fuel Rise in L’Oreal Sales

Texas News Today

FILE PHOTO: The logo of French cosmetics conglomerate L’Oréal in the western suburbs of Paris, in Le Valo Appelle, France, February 7, 2020. Reuters / Gonzalo Fuentes / File photo

21 October 2021

Sarah Moreland and Mimosa Spencer

PARIS (Reuters) – L’Oréal on Thursday reported higher-than-expected earnings growth in the third quarter, fueled by continued strong demand for its luxury lines and continued growth in China.

The French conglomerate, which owns brands such as Lancome and makes Armani cosmetics, has benefited from expanded e-commerce channels and more than 20% of luxury goods sales from reopened stores during the pandemic. It has grown rapidly.

Mainland China continued double-digit growth during the quarter, supported by strong demand for hair and skin care products, but growth was hampered by a resurgence of coronavirus restrictions in some regions.

CEO Nicolas Hironimus said the country’s e-commerce business continues to flourish, with restrictions primarily affecting in-store sales.

“China’s population and middle class is growing and the desire for beauty remains unfulfilled,” Hironimus told analysts over the phone.

Last year, China became the world’s second largest market for beauty and personal care products after the United States, according to market research firm Statista. The influence of the middle class and social media has increased and the demand for premium brands has increased.

But investors say the Chinese government’s call for “shared prosperity” (a broad policy push to bridge the gap between rich and poor) may prompt the state to limit high-end purchases. Worried.

Hieronymus, however, said that efforts to redistribute wealth are likely to increase the middle class and benefit L’Oréal’s business.

He cited cosmetic brands Lancome Absolute and Helena Rubinstein as saying that the premium line is L’Oreal’s fastest growing category in China.

The company reported a 13.1% increase in sales from July to September, which, excluding currency fluctuations and acquisitions, exceeded analysts’ expectations.

A consensus estimate quoted by Deutsche Bank predicted a growth of around 8%, anticipating a collapse in demand following the post-lockdown boom.

Sales rose 33.5% over the past three months as L’Oréal and the fashion label benefited from increased demand in China and the United States as they eased suppression of the coronavirus.

(Reporting by Mimosa Spencer and Sarah Moreland, edited by Elaine Hardcastle, Jonathan Otis, Nick Ziminsky)

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