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Weaker Make-Up Demand Drags On L'Oréal In North America

France's L'Oréal on Tuesday posted weaker than expected second-quarter sales growth, in part as demand for make-up products such as its Maybelline mascaras faltered in North America.

L'Oréal, like rivals such as Estee Lauder, continues to benefit from strong demand across Asia, now its biggest market, and appetite for high-end brands like its Lancome and Giorgio Armani ranges is particularly strong in China.

But other regions are proving more problematic, and the French cosmetics maker is also grappling with shifting beauty trends as a huge boom in make-up sales in recent years, spurred on by the rise of social media platforms, starts to ease.

'A Bumpy Start'

L'Oréal's performance in North America deteriorated in the quarter after a bumpy start to the year, with comparable sales down 1.1% in the April to June period even as some products like skincare treatments and perfumes did well.

"North America is still being held back by the slowdown in make-up," Chairman and chief executive Jean-Paul Agon said in a statement. The company is due to hold a conference call with analysts on 31 July (today).

Some Europe-based luxury firms operating in the fashion world, like Kering's Gucci brand, have also pointed to more sluggish US demand in recent quarters.

The Results

Overall, L'Oréal reported a 9.8% sales increase on a reported basis to €7.26 billion ($8.1 billion) for the second quarter. Like-for-like revenue, which strips out currency swings and acquisitions, rose 6.8%.

That was still a faster pace than the overall beauty market, and analysts had factored in a slight slowdown from the 7.7% posted in the previous quarter, but had projected revenue growth around the 7.4% mark.

Sales in the luxury division - which has driven growth at the group in recent years as more mass market ranges like its Garnier shampoos struggled - were up 12.2%, a touch below expectations.

L'Oréal's active cosmetics unit, which caters to dermatological conditions with brands like Vichy, topped forecasts, however.

The company, which reported a record operating margin of 19.5% at the end of June, also said it would carry out share buybacks in the second half of 2019 for up to €750 million, adding that it planned to cancel the shares acquired.

Operating profit for the first six months of 2019 was up 12.1% at €2.88 billion.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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