L’Oréal Acquires Maker of Clarisonic Skin Care Devices

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L’Oréal USA (NYSE:LRLCY), the American arm of the world’s largest cosmetic maker, recently agreed to buy Pacific Bioscience Laboratories, the Redmond, Washington-based  developer of Clarisonic skin-care devices, for an undisclosed amount. The company says the purchase is part of ongoing efforts to reinforce its position globally, as it competes with behemoth Procter & Gamble (NYSE:PG) and niche players such as Estée Lauder (NYSE:EL) and Revlon (NYSE:REV). Founded in 2001, Pacific Bioscience in 2004 introduced its Clarisonic electronic beauty devices, which clean the skin with oscillating brushes. Since their launch, the luxury skin-cleansing gadgets have become wildly popular with celebrities and spas. [1]

Skin care makes up makes up 25% of L’Oréal’s value according to Trefis and is the largest and fastest growing segment in the beauty and personal care industry.  Trefis expects this business to grow at around 5% year-over-year over the forecast horizon.

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Saving Face in Turbulent Times

The French cosmetics giant recently reported a 1.8% rise in third-quarter sales as growing emerging market demand and strong performance by its high-end skincare products and fragrances helped offset lackluster mass-market sales. [2] Like many retailers, the company has been hurt because its middle-income customers have cut back on spending as they face the challenges of the weak economy.

Even as sales remain sluggish in some of the world’s largest cosmetics markets, including the U.S. and Brazil, the demand for makeup, skin creams and cleaners in Asian countries like China, South Korea and Thailand is surging with rising personal incomes. L’Oréal will likely continue to benefit from that trend. The long-term outlook for demand of the company’s sought-after product lines—Lancôme, Kiehl’s, Garnier and the Body Shop—outweighs any short-term slowdown in demand.

The Trefis price estimate of $23 implies an upside of about 15% to the current market price.

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This article was submitted as part of our Trefis Contributors program. Email us at contributors@trefis.com if you’re interested in participating.

Notes:
  1. L’Oréal to Acquire Pacific Bioscience Laboratories, Clarisonic press release, Nov. 9, 2011 []
  2. Transcript of L’Oréal CEO’s Earnings Call, Seeking Alpha, Oct. 16, 2011 []