Riding On Currency Tailwinds And Strategic Alliances, L’Oreal Delivers A Healthy First Quarter

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L’Oreal (OTC:LRLCY), the international leader in cosmetics and beauty care, released its first quarter 2015 earnings on April 20th. Riding on currency tailwinds, the company posted revenues of € 6.4 billion, reflecting a 14% year-on-year growth in sales. Like-for-like sales, which exclude currency effects and other inorganic growth effects, increased 4% during the first quarter. In line with 2014, L’Oreal Luxe emerged as the star performing division while the previously sluggish Consumer Products division showed signs of recovery.

The company finalized its acquisitions of Neily in Brazil and is in the process of integrating its 2014 acquisitions-Magic, NYX, Decléor and Carita, into its business. (Read more about L’Oreal’s strategic acquisitions here.)

L’Oreal’s cosmetics branch is further divided into four segments. Below, we give a description and the full 2014 sales performance of these divisions: Professional Products Division: Products sold and used in hair salons. (+16% reported growth); Consumer Products Division: Products sold in mass market retail channels. (11.6% reported growth); L’Oreal Luxe Division: Products sold in selective retail outlets i.e. department stores, perfumeries, travel retail, and, online sites. (+20.1% reported growth); and, Active Cosmetics Division: Products for “borderline” complexions, sold through pharmacies, parapharmacies, drug stores, and medispas. (+10.2% reported growth) [1] According to L’Oreal, currency fluctuation had a positive impact of around 9.3% on the overall sales.

In this article, we discuss the major factors that impacted L’Oreal’s performance in the first quarter.

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We have a $33 price estimate for L’Oreal, which is at a slight discount to the current market price.

See Our Complete Analysis for L’Oreal Here

L’Oreal Luxe Was The Most Succesful Division Once Again; Consumer Division Showed Signs Of Recovery

L’Oreal Luxe has been the most successful division for L’Oreal inQ1 2015, with a reported year-on-year growth of 20.1% to reach sales of €1.8 billion. The strong performance for L’Oréal Luxe was driven by robust sales of brands such as Yves Saint Laurent (which witnessed a double-digit sales growth), Lancôme (its fragrance “La vie est belle”, is a top selling fragrance in France, and is the second most popular brand in Europe), and Giorgio Armani. The alternative lifestyle brands Urban Decay and Kiehl’s continued their international expansion. In Q1 2015, L’Oréal Luxe outperformed the global beauty market especially in Western Europe and Asia.

L’Oreal’s Active Cosmetics division recorded 10.2% year-on-year growth to record year end sales at €559.2 million. The division was boosted by brands such as Vichy, La Roche-Posay, and SkinCeuticals. The Active Cosmetics division, like luxury products, is also expanding its distribution through travel retail channels. The division’s first travel retail outlet was recently launched in Hong Kong.

L’Oreal’s Consumer Products division reported an 11.6% year-on-year growth in revenue to €3.1 billion. The mass-market cosmetics growth was uplifted by the launch of makeup brands such as Infallible Matte foundation by L’Oreal Paris, Lash Sensational mascara by Maybelline and the growth of its 2014  acquisition, NYX Cosmetics. NYX Cosmetics is a high-growth mass market makeup cosmetics brand with a presence in more than 70 countries globally. The company is a direct competitor to Estee Lauder’s M-A-C brand of makeup cosmetics and has seen explosive growth in sales over the last two fiscal years. The sluggish European market dampened the division’s growth while it continued gaining market shares in North America, Eastern Europe, and Latin America.

Research And Development Focus

L’Oréal has the largest Research and Innovation team in the cosmetics industry with 3,782 researchers and a budget representing 3.4% of its sales. The R&D budget was over $1 billion in 2014, up by 1.6% as compared to the previous year.

In April 2015, L’Oreal entered into a skin tissue research agreement with the bio-printing technology firm, Organovo. The research will involve L’Oreal’s skin cell technology along with Organovo’s proprietary NovoGen Bioprinting Platform. The agreement will provide L’Oreal with exclusive rights to use the skin tissue models for the development, manufacturing, testing, evaluation and sale of non-prescription cosmetic, beauty, dermatology and skin care products and nutraceutical supplements. [2]

In December 2014, L’Oreal announced the acquisition of Israel-based hair research start-up, Coloright.

Expanding Presence In Africa By Forging Strategic Partnerships

L’Oreal had been on the lookout for more robust distribution channels in the African region. Distribution remains unstructured and hence cumbersome in Africa. In a move to further expand its African presence, L’Oreal signed an agreement with CFAO, the specialized distributor from Cote D’Ivoire, to cover the production and distribution of cosmetics in the Ivory Coast. The partnership will bolster L’Oreal’s distribution network as CFAO will be the sole distributor of L’Oreal products in French speaking West Africa. (Read about how L’Oreal is bolstering its Africa presence here and here).

L’OReal’s Body Shop Acquired Its Australian Franchisee

L’OReal’s Body Shp recorded 9.1% year-on-year growth to generate net sales of €192.4 million. One of the growth drivers was the recently launched product called Drops of Youth Bouncy Sleeping Mask. On February 2015, The Body Shop announced the acquisition of its Australian franchise Adidem Pty Limited, which operates 91 stores in Australia.

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L’Oreal (OTC:LRLCY), the international leader in cosmetics and beauty care, released its fourth quarter earnings on February 12th. The company witnessed a moderate 2014, as judged by its financial performance. For the fourth quarter of 2014, L’Oreal reported a sales expansion of 8.5% to €6 billion. Like-for-like sales, which exclude currency headwinds and other inorganic growth effects, increased 4.9% during the fourth quarter. L’Oreal’s annual sales for 2014 were €22.5 billion reflecting year-on-year growth of 1.7% (3.8% in like-for-like terms).

L’Oreal’s cosmetics branch is further divided into four segments. Below, we give a description and the full 2014 sales performance of these divisions: Professional Products Division: Products sold and used in hair salons. (+2% reported growth); Consumer Products Division:Products sold in mass market retail channels. (-1% reported growth); L’Oreal Luxe Division: Products sold in selective retail outlets i.e. department stores, perfumeries, travel retail, and, online sites. (+5.7% reported growth); and, Active Cosmetics Division: Products for “borderline” complexions, sold through pharmacies, parapharmacies, drug stores, and medispas. (+5.3% reported growth) [3] According to L’Oreal, currency fluctuation had a negative impact of around -2.3 percentage points on the overall sales.

In this article, we discuss the major factors that impacted L’Oreal’s performance in the fourth quarter.

We will be shortly updating our $37 price estimate for L’Oreal, based on the fourth quarter report.

See Our Complete Analysis for L’Oreal Here

Notes:
  1. First Quarter 2015 Sales, L’Oreal Finance, April 20, 2015 []
  2. Organovo (ONVO) Enters Research Collaboration Agreement with L’Oreal USA, Street Insider, April 7, 2015 []
  3. L’Oreal 2014 Annual Results, L’Oreal Finance, February 12, 2015 []