The French cosmetics giant, L’Oreal (PINK:LRLCY) will release its FY 2012 sales figures on February 11. It has reported a strong performance in the first three quarters of 2012, with sales growing at 11% to about 17 billion euros. The strong sales growth in North America and Asia made up for the losses in Europe.
Over the past year, the company has increased its focus on the Asian market and set up a new research facility in India and a mega factory in Indonesia. The customization of products to the local population’s tastes is expected to boost the popularity of its products while local production would mean the company can take advantage of the low labor and material costs. We expect the Asian market to drive revenue growth for the company in 2012 and over the coming years. We will also look for any hints of growth in prestige products sales outperforming the sales of mass market products.
Expecting Flat Sales From The European Market
Western Europe accounts for about 36% of L’Oréal’s cosmetics sales and is its biggest market. During the first nine months of the year, the company recorded slightly positive like for like growth of 0.4% in the flat to a slightly negative Western European market.  This figure reflects contrasting trends with good scores in the United Kingdom, France and negative trends in the countries of Southern Europe. These performances were supported by the growing popularity of professional products targeted at beauty saloons. We will look for sales in professional products and the company’s strategy to turn around its growth slowdown in European markets. During 2012, the NPD Group estimates that beauty product sales increased by 5% in the U.K. and registered a marginal decline in France. We expect L’Oréal’s sales to adhere to the trend. 
Non-Traditional Markets To Drive Growth
North America and Asia-Pacific together account for about 45% of L’Oréal’s global cosmetics sales and almost all of its sales growth. The Asia-Pacific business reported a sales growth of about 11% in the year so far and North America followed at 7.2%.
The company has invested significantly into localizing its products to cater the tastes of the local market over the past year, and we expect the initiatives to bear fruit with the regions driving the global sales growth. The company has recently opened up a new factory in Indonesia and Mexico.  We expect the local productions to help the company improve its margins in 2013 and beyond.
We have a $26 Trefis price estimate for L’Oreal, 10% below its current market price.Notes:
- Sales at September 30, 2012, L’Oréal Finance, November 2012 [↩]
- The NPD Group Presents 2012 Overview of U.S. and Global Beauty Sales, NPD Group, January 2013 [↩]
- L’Oréal Opens New Hair Color Production Facility in Mexico, GCI, December 2012 [↩]