L’Oreal Q2 2015 Earnings Preview: Luxe Division Expected To Continue Healthy Growth, While The Consumer Division Might Recover

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L’Oreal is slated to release its Q2 2015 earnings on July 30. Riding on currency tailwinds, L’Oreal posted a healthy Q1 2015. The company posted revenues of € 6.4 billion, reflecting a 14% year-on-year growth. In line with 2014, L’Oreal Luxe emerged as the star performing division in Q1 2015, as well. However, its previously sluggish Consumer Products division showed signs of recovery in the first quarter. We expect L’Oreal to continue performing well on the back of its strategic acquisitions and expansion of global footprints. (Read more about L’Oreal’s strategic acquisitions in 2014, here.)

We will update our $33 price estimate for L’Oreal, after the Q2 2015 earnings release.

See Our Complete Analysis for L’Oreal Here

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L’Oreal’s Africa Sale Expected To Grow Post Its Partnership With CFAO

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, in Q1 2015 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.

L’Oreal aims to add 1 billion new customers by 2020, so as to double its existing user base. The majority of the growth is expected to come from emerging nations in regions such as  Asia, Africa, and Latin America. We believe Africa will play a pivotal role in L’Oreal’s expansion plan. (Read about how L’Oreal is bolstering its Africa presence here and here).

L’Oreal’s Research And Development Focus Might Result In An Innovative Array Of Product

L’Oreal 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 involves 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. [1]

In December 2014, L’Oreal announced the acquisition of Israel-based hair research start-up, Coloright. Coloright develops hair-fiber optical reader technology and it will be a part of L’Oreal’s international Research and Innovation network. According to L’Oreal’s estimates, the top two contributors for the global beauty market are skin care (34%) and hair care (24% ). [2] L’Oreal has always been a pioneer in hair research, and this acquisition will further aid the company in being one of the forerunners in hair care related innovations.

L’Oreal Luxe Expected To Be The Top Performer In Second Quarter, As Well

L’Oreal Luxe has been the most successful division for L’Oreal in Q1 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’Oreal Luxe outperformed the global beauty market, especially in Western Europe and Asia. We expect Luxe to continue in its growth trajectory in Q2 2015, also.

L’Oreal’s Consumer Division Reporting Improvements Post Strategic Investments

In 2014, L’Oreal’s Consumer Products division, reported a 1% year-on-year decline in revenue to €10.8 billion. The market for mass-market cosmetics remained sluggish both in North America and emerging markets, particularly the Asia-Pacific region. [3] In Q1 2015, L’Oreal’s Consumer Products division reported an 11.6% year-on-year growth in revenue to €3.1 billion. The 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 consumer division also gained shares in North America, Eastern Europe, and Latin America, in the first quarter. [4]

 

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Notes:
  1. Organovo (ONVO) Enters Research Collaboration Agreement with L’Oreal USA, Street Insider, April 7, 2015 []
  2. L’Oreal’s Annual Report 2013, L’Oreal Finance []
  3. L’Oreal 2014 Annual Results, L’Oreal Finance, February 12, 2015 []
  4. First Quarter 2015 Sales, L’Oreal Finance, April 20, 2015 []