L'Oreal rejuvenated by skincare craze

Alanna Petroff
Senior Economics Correspondent at Yahoo Finance UK

L’Oreal put its best face forward this week as it reported shining quarterly results demonstrating the beauty giant is capitalising on the global skincare craze.

The company, which owns premium brands including Kiehl’s, La Roche-Posay and Vichy, reported skincare sales have accelerated significantly this year, contributing to an overall 6% surge in third-quarter revenue to €6.5bn (£5.8bn, $7.4bn). This was the highest quarterly sales increase the company has seen in 10 years, according to L’Oreal (OR.PA) CEO Jean-Paul Agon, even though it was weighed down by unfavourable currency swings.

On an earnings call, management said skincare sales were growing at double-digit rates, while perfume and make-up sales were in the single-digit range. Haircare sales were essentially flat.

Worldwide skincare sales have grown by 28% over the past five year, led by a surge in special facial masks and premium skincare sets, according to data from research firm Euromonitor. Face mask sales have surged by 75% in five years to become a $6.4bn (£5.7bn) market.

The French cosmetics conglomerate reported its Lancome and Kiehl’s skincare offerings were performing exceptionally well, with buyers clamouring to get the Kiehl’s ‘Line-Reducing Concentrate’.

Male consumers were also increasingly getting in on the game too.

“The success of Men Expert by L’Oreal Paris is also contributing to the acceleration of men’s facial skincare,” the company said.

L’Oreal reported glowing results this week that exceeded analyst expectations. Photo: Balint Porneczi/Getty

The financial results blew past analyst expectations and investors bid up the shares by about 7% in afternoon trading in Paris on Wednesday.

The company also reported exceptionally strong growth in Asia Pacific, led by surging demand in China.

“The buoyant growth in China is backed up by consumers’ growing purchasing power and ever aspirational Chinese millennials who continue to be heavily influenced by brand names and driven by status,” noted Euromonitor analyst Kseniia Galenytska.

L’Oreal’s travel retail business – which covers sales in airports – rose 30%, and e-commerce sales were up 38%.

But some other areas fell flat, with the company outlining challenges in it’s biggest market, Western Europe, where sales slipped by 1%. The UK was a particular weak spot.

And there are lurking risks as well, according to analysts at Jefferies. After years of growth in the US market, buyers may be losing interest in beauty products.

“We continue to see signs that beauty spending growth [in the US] is giving way for growing spend in fashion – a reversal of a five-year hyper-spending cycle in beauty,” said the Jefferies analyst.

L’Oreal’s second largest market is North America, where it has been outperforming its competitors, including Coty (COTY) and Revlon (REV).