L'Oreal Kicks Off FY 2016 With Consumer Biz Acceleration, NA Share Gains
This article was originally published in The Rose Sheet
Executive Summary
Firm reports 4.2% like-for-like growth for the fiscal 2016 first quarter, driven by improvements in North America and the best performance from its Consumer Products division in almost three years. Analysts see the results as an affirmation that L'Oreal's competitive edge remains sharp.
A makeup market "on fire" continues to propel L'Oreal S.A.'s Consumer Products division, but the company says it is capturing share in the segment as well, including in North America, thanks in part to major brand reboots.
L'Oreal's Consumer business recorded sales of €3.1bn ($3.56bn) for the fiscal 2016 first quarter, up 3.9% like-for-like or 0.9% reported. According to the firm's April 18 release, the performance marked the unit's best quarter in almost three years.
The acceleration is expected to continue as the year progresses. "We think that it's just the beginning," said Chairman and CEO Jean-Paul Agon in a same-day call.
"L’Oreal is on track to achieve one of its best years since the financial crisis." – Deutsche Bank Markets Research analyst Harold Thompson
"Renovation" of its L'Oreal Paris, Maybelline and Garnier brands is "starting to bear fruit," according to the exec, who noted that the division is back to gaining market share in North America.
L'Oreal's makeup sales in the region benefited from a strong Maybelline showing, with Color Sensational Vivid Matte Liquid Lip Color named as a standout, as well as from L'Oreal Paris' new Infallible Sculpt contouring palette, promoted as rendering users "selfie-ready from every angle."
The rapidly growing NYX Professional Makeup range, touted as high-quality cosmetics at accessible prices, also played a key role in the Consumer unit's Q1 success.
Agon stressed that L'Oreal innovations are building on a "strong tailwind" from the worldwide makeup boom. "The deployment of NYX around the world will definitely make the makeup category very strong for us," he noted.
Meanwhile, the recent launch of the natural-inspired Garnier Whole Blends line is fueling North American hair-care gains for L'Oreal.
Company leadership noted in February when discussing fiscal 2015 results that Garnier was among its brands that would be receiving a naturalness infusion in line with global trends (Also see "L'Oreal Works To Boost Skin-Care Sales, With Makeup Already Soaring" - HBW Insight, 22 Feb, 2016.).
Garnier describes the Whole Blends collection as containing "a signature natural blend of select ingredients combined with sensorial fragrances," making for "nurturing and gentle formulas which help restore the health and natural beauty of hair with every use."
The brand's Ultimate Blends Delicate Oat collection also is beginning to roll out in North America. Formulated with antioxidant-rich oat milk and rice cream, "an exotic beauty secret from the Far East," the line is designed to soothe sensitive scalps and protect fragile hair, according to Garnier.
Skin care, which L'Oreal noted in February is a priority for revitalization, was flat for the quarter.
Agon acknowledged that the global skin-care market was slow last year and continues to drag, but promised some "strong initiatives" in the category likely to impact the firm's performance in the second half of the year.
According to the exec, L'Oreal currently is nabbing share in the US facial cleansing space with Garnier SkinActive Micellar Cleansing Water, touted as an "all-in-1 cleanser and makeup remover."
Overall, L'Oreal posted €6.55bn in Q1 sales, representing 1.8% growth on a reported basis or 4.2% like-for-like, a figure that reflects volume growth almost exclusively, Agon said. At the same time, he characterized first-quarter results as "soft," with improvements anticipated over the course of the year.
L'Oreal Luxe sales increased 4.4%, reported, to €1.75bn for the quarter, weighed down by challenging comparisons in Hong Kong and the travel-retail channel, according to the firm's release. The company's Professional Products division was flat on a reported basis at €854.3m.
On a like-for-like basis, the units advanced 2.5% and 5.5%, respectively.
Active Cosmetics sales totaled €559.2m, flat in reported terms and up 4.5% like-for-like, L'Oreal reports.
The firm expects sales in its Professional Products and Active Cosmetics businesses to strengthen over the coming quarters, contributing to overall sales and profit growth for the full year.
Competitive Edge 'Unwavering'
Analysts were optimistic about the company's organic growth and projections.
In a same-day note, Deutsche Bank Markets Research analyst Harold Thompson stated: "L’Oreal reported a better start to 2016 than many had expected. … With management forecasting a further acceleration in LFL growth this year from the Q1 level, [that] could mean L’Oreal is on track to achieve one of its best years since the financial crisis."
Credit Suisse analysts suggest in an April 22 report that in recent years L'Oreal's ability to outgrow the European market has declined, while it has struggled in North America, particularly in the US.
However, the analysts see evidence of improvement in Europe and encouraging signs that L'Oreal's turnaround in the states has begun, with brand renewals, accelerated innovation and the "stunning success" of the NYX brand leading the charge.
In short, "the perception that the group is losing its edge is wrong in our view," the analysts say.
Morningstar's Erin Lash is of a similar mind. "Slowing growth around the world and intense competitive pressures persist, but as evidenced in the first-quarter trading update, L'Oreal's competitive edge is unwavering."