L'Oreal banks on cosmetics bounceback, citing Chinese pick-up
Apr 16, 2020
L’Oreal is counting on consumers rushing back to hair salons to help its business recover quickly once European and U.S. coronavirus lockdowns are lifted, it said on Thursday, adding that beauty sales were bouncing back already in China.
Like peers, the French firm, which makes Garnier shampoo and Lancome creams, has been hit by the closure of airport duty-free shops, department stores and salons as countries restrict people’s movements to fight the pandemic.
Confinement measures have dragged on make-up sales, with about 90% of women shunning their cosmetic routines while working from home, according to a survey by Jefferies.
But L’Oreal, the world’s biggest beauty firm by sales, provided an upbeat outlook despite a 4.8% fall in comparable first-quarter sales, in a potential boost for some rivals like U.S.-based Estee Lauder.
It pointed to a turnaround in China, where sales rose 6.4% in the January to March period, and lockdown measures have eased.
Skin and hair-care products did well during the confinement period there as e-commerce sales surged, L’Oreal Chief Executive Jean-Paul Agon said, and other items are now in demand too, even if some make-up products are lagging as Chinese consumers wear face masks to return to work.
“It is not of course a great incentive to wear lipstick,” Agon told analysts.
“Once stores will be open again ... I think we will be back to a consumption pretty similar to what we have seen before,” he said of other countries.
L’Oreal did not provide an earnings forecast for 2020, and analysts expect the sales drop will worsen in the second quarter as the European and U.S. closures bite. But revenue from China, L’Oreal’s biggest market, could increase over 10% in the April to June period, Agon said.
The company also provides products for professional hairdressers, which could be a bright spot later this year, with Agon citing a “dire need” expressed by many women to touch up their hair colour.
“This frustration will create a strong return trend (to salons),” he said.
Nail Care In, Fake Tan Out
Beauty treatments like hair cuts and eyebrow waxing were the activity people were most looking forward to once lockdowns are lifted, research by consultancy Kantar showed last week.
Cosmetics firms, meanwhile, have been trying to make up for lost business by selling more online.
Zalando, Europe’s biggest pure online fashion retailer, said on Thursday that beauty items were performing well.
“We receive three times as many orders of skin care, nail care, hair care, and beauty accessories compared to the same time last year,” a Zalando spokeswoman said, adding that detox products and candles were also popular.
Not all products are garnering the same demand, however, and unlike Estee Lauder and Guerlain-owner LVMH, which are largely focused on luxury cosmetics, L’Oreal has the advantage of also selling its lower-end ranges in supermarkets, which remain open.
LVMH reported a steeper 18% fall in comparable first-quarter revenues for its perfume and cosmetics business on Thursday.
Britain’s PZ Cussons said demand for its Carex hand wash and Imperial leather soap was surging due to the pandemic, but products like its fake tan lines were struggling.
L’Oreal’s first-quarter sales reached 7.2 billion euros ($7.8 billion), down 4.3% on a reported basis from a quarter earlier, and dropping 4.8% drop like-for-like, which strips out the effects of acquisitions and currency swings.
Online sales accounted for nearly 20% of revenue.
The group said it had put off some product launches planned for the second quarter and would slash advertising spending temporarily to keep a lid on costs.
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