Headline: L'Oreal's Q3 Sales Fall Short of Expectations Amid Challenges in China
French cosmetics giant L'Oreal reported a lower-than-expected sales growth for the third quarter, attributing the slowdown to a decline in consumer confidence in China, which impacted demand for beauty products. The company, owner of popular brands like Maybelline and Lancome, reported sales of 10.28 billion euros ($11.11 billion) for the quarter ending in September. This represents a like-for-like increase of 3.4% at constant exchange rates, falling short of analysts' expectations of a 6% rise.
Performance in China, which accounts for a quarter of the group's sales, was particularly weak due to a real estate crisis and increasing youth unemployment affecting consumer spending. Sales in North Asia, largely driven by the Chinese market, fell by 6.5% in the third quarter, worsening from a 2.4% decline in the previous quarter.
CEO Nicolas Hieronimus commented on the situation, stating that although L'Oreal performed in a very adverse market, the results were still unsatisfactory. He noted that the luxury segment in China experienced the steepest decline, with sales dropping to the "negative mid-teens."
Broader economic data released on Friday showed that China's growth had slowed to its weakest level since the beginning of 2023. Other luxury brands like LVMH, EssilorLuxottica, and S. Ferragamo also cited challenging market conditions in China as reasons for missing their sales targets in the third quarter.
L'Oreal's previously fast-growing Dermatological Beauty division saw a significant slowdown, with a 0.8% increase compared to a 10.8% rise in the second quarter. This slowdown was partly due to a high comparison base from the 57 million euro insurance payment received in the same quarter last year.
Acknowledging the need for innovation, Hieronimus outlined plans to launch new products to win back consumers, particularly in the U.S., where the company observed a tendency for younger Gen Z consumers to shift towards competing brands.
Despite challenges in China and emerging markets, L'Oreal experienced positive momentum in North America, with sales up 5.2%, marking an improvement from earlier in the year. This growth was driven by strong performances in the haircare and fragrance sectors.
Looking ahead, L'Oreal plans to increase product launches next year to drive growth amid a post-pandemic demand surge and a reduction in inflationary pressures. The current exchange rate is 1 euro = 0.9255 dollars.