L’Oréal’s recovery picks up pace driven by China

First-quarter sales at three of L’Oréal’s four businesses have exceeded levels from before the Covid-19 pandemic, putting the world’s biggest cosmetics maker on track for recovery this year.

The French company benefited from strong growth in China, where consumers have put the pandemic behind them to push sales up 38 per cent in the quarter, continuing a years-long run that has made the country its second-largest market after the US.

But the consumer products division, which sells mass-market brands such as Maybelline make-up and Garnier shampoos and is L’Oréal’s biggest, had lower quarterly revenues than a year ago. It has been penalised by consumers turning away from elaborate grooming rituals as they spend more time at home.

Europe also remained a sore point as a resurgence of infections and repeated lockdowns have hurt demand.

In contrast, L’Oréal’s skincare division, which sells brands like Kiehls and La Roche-Posay, has boomed despite repeated lockdowns that have closed stores and beauty salons in much of Europe.

First-quarter sales stood at €7.6bn, slightly short of the €7.7bn expected by analysts, according to Thomson Reuters Eikon.

That represented organic growth of 10.2 per cent once the impact of currency moves and acquisitions were stripped out, ahead of consensus for 8.7 per cent organic growth.

The results come at a turning point for L’Oréal, which competes with smaller rivals Estée Lauder and Coty, as well as independent brands.

Jean-Paul Agon, chief executive
Jean-Paul Agon, chief executive since 2006, will step aside from May 1 to be succeeded by Nicolas Hieronimus © Bloomberg

Jean-Paul Agon, who has been chief executive since 2006, will step aside from May 1 to be succeeded by deputy CEO Nicolas Hieronimus.

Agon led a period of global expansion for the French company, especially in Asia, growth that was achieved largely organically without blockbuster acquisitions. Even the biggest deals under his leadership did not exceed $2bn, although L’Oréal did often buy up-and-coming brands such as Kiehl’s and then nurture their growth.

Agon will remain chair once Hieronimus takes over, and he remains a trusted confidant of the group’s biggest shareholder, the billionaire Bettencourt-Meyers family.

The stock price more than quadrupled under Agon’s leadership from €70 a share when he took over to €342 at Thursday’s close. The shares are now trading at all-time highs, up 60 per cent from a trough in mid-March last year.

Investors have piled in as L’Oréal has showed it is well positioned to thrive in the era of the pandemic because of its international presence and knowhow in ecommerce.

Ecommerce, which includes sales on L’Oréal’s own websites as well as those of its partner retailers, rose 47 per cent in the quarter, which represented a slowdown from the 62 per cent seen last year when consumers turned to online shopping while stores were closed.

In February, Agon predicted a boom for beauty once the Covid-19 pandemic subsided similar to the roaring 1920s that followed the global influenza pandemic of 1918. While this has not yet fully come to pass, L’Oréal said there were encouraging signs from countries such as China, where infections are low, and Israel, where vaccination programmes are very advanced.

“We believe our prophecy will be confirmed, and the make-up party will begin,” said Agon.

Speaking of Israel, Hieronimus said: “It may not yet be the roaring 1920s but the signs are good.”

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