L'Oreal sales jump as shoppers buy perfume, pricey creams

L'OREAL sales climbed as the cosmetics giant benefited from higher demand for its luxury products, weathering virus restrictions in China.

Sales rose almost 14 per cent on a like-for-like basis in the first quarter, the company, based near Paris, said in a statement Tuesday (Apr 19). Analysts had forecast a gain of about 12 per cent. Three of the 4 main divisions grew at double-digits.

The luxury unit, which includes skincare brands like Helena Rubinstein and Yves Saint Laurent perfume, grew by almost 18 per cent. Total sales at the premium unit surpassed the mass-market consumer products business for the first time last year. The latter unit grew 6.9 per cent during the quarter. L'Oreal said it experienced "supply difficulties" that won't be fully solved by the second quarter, chief executive officer Nicolas Hieronimus told analysts in a call.

He said he expects the beauty market will grow between 4 per cent and 5 per cent this year, with L'Oreal outperforming this growth.

Shares of the company have declined 16 per cent this year.

L'Oreal won't be able to fully offset the input-cost increases of its products, which will affect its gross margin in the first half, chief financial officer Christophe Babule said during the call. That's despite measures to increase product prices, especially for new launches, as well as a reduction of advertisement and promotional spending as a percentage of total sales, he said.

L'Oreal in China had "double-digit" growth during the first quarter, outperforming the market in the country thanks to "successful campaigns" for Chinese New Year, Valentine's Day and Women's Day, according to the statement. Although current lockdowns are affecting demand, Babule said he's confident that Chinese consumers' appetite for cosmetics can recover quickly once virus restrictions ease, as happened 2 years ago.

Lockdowns aside, "longer-term this market remains set to shine", said Ross Hindle, an analyst at research firm Third Bridge. "The Chinese consumer has shown a strong desire for beauty products, and with an accelerating middle class, demographics remain in the group's favour."

Hieronimus said the group is still selling essential products in Russia. "We're taking all the appropriate measures to offset any reputational risks" related to the company's presence there, he added. "Should the situation warrant it, we'll make adjustments." Russia represents around 1.5 per cent of total sales for L'Oreal.

Last month, L'Oreal announced it was temporarily shutting stores as well as its e-commerce site in Russia even though its plant near Moscow remained open for business. BLOOMBERG