L’Oreal Delivers One Of Its Strongest Quarters, Driven By Organic And Inorganic Growth, Coupled By Currency Tailwinds

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Riding on currency tailwinds, L’Oreal (OTC:LRLCY) registered a 15.3% year-on-year growth for Q2 2015, one of its strongest in the last couple of decades. Like-for-like sales, which exclude currency effects and other inorganic growth effects, increased 3.8% during the second quarter. L’Oreal’s Western Europe and North American regions witnessed significant improvements, while Brazil is still reeling under economic problems. L’Oreal’s digital sales have been impressive and L’Oreal’s initiatives in China are paying off. As we predicted in its earnings preview, L’Oreal’s Luxe segment continued to demonstrate strong growth in the second quarter, as well.

We are in the process of updating our $33 price estimate for L’Oreal.

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L’Oreal Demonstrated Broad Based Growth Across All Divisions

For Q2 2015, on a like-for-like basis, L’Oreal’s Luxe division continued soaring high (5.8% growth to €1.7 billion)  primarily due to the double digit growth of its brands like Giorgio Armani, Yves Saint Laurent, and Kiehl’s. Lancome, the premier feminine Luxe beauty brand, is showing strong growth momentum with the success of its fragrance brand, La vie est elle, which reached the fourth position, worldwide. [1] [2]

L’Oreal’s Consumer segment (2% growth to €3.1 billion in Q2) and Professional care segment (3.5% growth to €888 million in Q2) witnessed improvement so far, in 2015. L’Oreal’s consumer division was fueled by the revival of its Maybelline brand. The L’Oreal Paris and Garnier brands will undergo a complete relaunch for the skincare range in the upcoming quarters. L’Oreal’s Professional segment showed signs of revival in 2015, and it is the market leader, currently. Some of the successful products under this segment were L’Oreal Professionnel and Redken.  L’Oreal’s 2014 acquisitions, Decleor and Carita, are now gearing up to be the worldwide leaders in the professional beauty market. [1] [2]

L’Oreal’s Active Cosmetics showed the highest like-for-like growth rate of 6.5% in Q2 2015, however, it contributes less than 10% to L’Oreal’s total sales. The Active Cosmetics division’s growth was driven by the double digit growth of La Rochay-Poasay. [1] [2]

L’Oreal’s Strategies For Recovering The American Market Seem To Be Working

After a sluggish 2014, L’Oreal’s North America market had started showing signs of recovery in 2015. All the divisions projected growth, with the consumer division having significantly rebounded after negative growth in 2014. However, the biggest successes in North America were L’Oreal’s make-up brands such as Maybelline, L’Oreal Paris, and NYX. L’Oreal’s 2014 acquisition, NYX Cosmetics is a high-growth mass market makeup cosmetics, which is in direct competition with its chief rival Estee Lauder’s M-A-C brand. [1] [2]

L’Oreal acquired NYX with the aim of recovering the slow growth in the North American market and it seems to have been successful in this strategy. NYX displayed almost 70% growth in sales in the first half of 2015. [2]

Brazil Under Pressure, Russia’s Impressive Growth, China’s Recovery

Brazil’s weak economic condition has stunted growth in that region. L’Oreal’s consumer segment’s growth was dampened to a great extent due to the poor performance in Brazil. In Latin America, L’Oreal observed double digit growth in Hispanic America.

L’Oreal witnessed around 16% growth from Russia in the first half of 2015. L’Oreal’s China market had been performing well in all the divisions except for the Consumer segment. L’Oreal is taking initiatives to revive the Consumer division in China through the relaunch of Maybelline, new initiatives in L’Oréal skincare, and the launch of a new line called L’Oréal Men Expert haircare.

Western Europe’s performance improved significantly in the first half of 2015, predominantly due to the growth of the Luxe division-given the strong demand for luxury fragrance in the region. [2]

L’Oreal’s Expansion Of Digital Presence

In the first half of 2015, around 20% of L’Oreal’s total media comprised of the digital format, and L’Oreal e-commerce sales rose by over 40%, and constituted around 4% of the total group sales. L’Oreal’s e-commerce sales are expected to cross €1 billion in 2015. [2]

Digital sales have always been one of the major focuses for the company. In 2014, L’Oreal experienced a 30% year-on-year growth in its online sales and it contributed to around 6% of its total revenues. Around 10% of L’Oreal’s China revenue in 2014 came from the online channels. L’Oreal wishes to follow the China model across the world. Towards this end, it appointed Lubomira Rochet as the Chief Digital Officer, a newly created position in 2014. [3]

In March 2015, L’Oreal USA, L’Oreal’s largest subsidiary, announced a partnership with Powa Technologies, a popular mobile platform. As a result of this partnership, L’Oreal can tag any of its advertising, promotions, or in-store products, and allow their instant e-commerce purchase. PowaTag’s technology is capable of converting a consumer touch point, such as print and television advertising, e-commerce, retail stores, and social media, into a platform through which mobile transaction can be completed. PowaTag’s 2-D barcodes can be scanned with an application to complete online purchases. Along with ease of purchase for the user, L’Oreal’s visibility also increased manifold as a result of this collaboration, as advertisements through smart phones will create a deeper penetration for L’Oreal’s products. [4]

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Notes:
  1. L’Oreal’s First Half 2015 Results, July 30, 2015 [] [] [] []
  2. L’Oreal’s (LRLCY) CEO Jean-Paul Agon on Q2 2015 Results – Earnings Call Transcript, Seeking Alpha, August 2, 2015 [] [] [] [] [] [] []
  3. L’Oreal’s (LRLCY) CEO Jean-Paul Agon on Full Year 2014 Results – Earnings Call Transcript, Seeking Alpha, February 13, 2015 []
  4. L’Oreal USA Moves to Make All Types of Ads — Online and Off — ‘Shoppable’, AdAge, March 12, 2015 []