Cosmetics group L'Oreal beat expectations for first-quarter sales growth on Tuesday, batting away concerns about lockdowns in China and inflation as consumers snapped up high-end beauty products in its key markets.
“We are not even close to experiencing a luxury down-turn, we see many people that are affluent and even the middle classes want to indulge,” Nicolas Hieronimus, chief executive officer, L’Oreal told analysts in a call.
“The overall demand for luxury products and premiumised products is very high – the market is premiumising overall,” he added.
The Active Cosmetics division, which includes Vichy and CeraVe labels, grew fastest, with sales up 18%. Its largest division, L'Oreal Luxe, which sells Giorgio Armani and Lancome products, clocked 17.5% growth. The two divisions are the beauty giant's most profitable divisions.
Overall group sales rose 13.5% on a like-for-like basis to €9.06 billion ($9.8 billion) over the first three months of 2022, with double-digit growth from Europe, North America and mainland China.
Analysts had expected 10.6% sales growth, according to a consensus estimate cited by Credit Suisse.
"This is a good statement overall with strong momentum behind L'Oreal's key growth drivers," RBC analysts said, citing North Asia, North America and the Active Cosmetics division.
Executives struck an optimistic note on China, where lockdowns aimed at curbing the spread of COVID-19 are weighing on store traffic, noting the local market in the country remains dynamic, with strong potential in Hainan. While online traffic on Alibaba's e-commerce platform Tmall is plateauing, other retailers like JD.Com and TikTok's Douyin shopping platform are growing quickly, according to Hieronimus.
Russia Store Closures
Asked how the company is assessing risks in Russia, where it temporarily closed stores and counts 2,200 employees and a production plant, Hieronimus said he was keeping a close eye on reactions from consumers and employees, even if the group's position was "very well understood and very well accepted."
"We are monitoring the situation extremely closely both in terms of consumer sentiment, in terms of our teams' sentiment and we are taking all the appropriate measures to offset any reputational risk," he said.