L’Oreal’s Fourth Quarter Might Look Good With The Revival Of Weaker Divisions And Digital Advancements

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L’Oreal (OTC:LRLCY) is slated to release its fourth quarter 2015 results on February 11th. The company had been witnessing a robust 2015 so far, primarily on account of currency tailwinds. However, L’Oreal’s strategic investments, alliances, as well as the recovery of some of its weak divisions were also some of the contributing factors to the growth. The company’s revenues for the first nine months of 2015, stood at €19 billion, reflecting around 13% year-on-year growth.

We will update our $36 price estimate for L’Oréal after the earnings results.

See Our Complete Analysis for L’Oreal Here

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L’Oreal’s Performance So Far

In North America, L’Oreal’s reported sales grew for the first nine months by 25% on a year-on-year basis (3% like-for-like). The two main divisions propelling this growth were Active Cosmetics and Professional Division. Also, L’Oreal’s 2014 acquisition, makeup brand NYX, helped in the revival of the Consumer Products Division. The brand has displayed almost 70% growth in sales in the first half of 2015.

The disappointing performance in Hong Kong and the slowdown of Travel Retail Asia pulled down L’Oreal’s Asia Pacific business. However, the company’s Consumer Products Division was a hit in India, Australia, and Thailand. L’Oreal’s sales in China had been bolstered by L’Oreal Paris. L’Oreal’s 2014 acquisition of Magic Holdings, the leader in the Chinese facial care market, is expected to drive growth even further in the future. Currently the brand is in a transitional phase.

L’Oreal’s Latin American sales for the first nine months grew by around 5% and was weighed down by Brazil’s grim economic scenario, and also due to the IPI (Tax on Industrialized Products). Excluding Brazil, all other Latin American regions experienced double-digit growth.

In the Middle East and Africa the company’s sales grew by around 28% (~10% like-for-like) in the first nine months of 2015. A part of the growth was dampened on account of the reorganization of distribution channels in the Gulf States. In Q1 2015, L’Oreal has signed a partnership with CFAO, the specialized distributor from Cote D’Ivoire, to cover the production and distribution of cosmetics in the Ivory Coast. CFAO is currently the sole distributor of L’Oreal products in French-speaking West Africa.

L’Oreal Is Digitally Advancing In Leaps And Bounds

L’Oreal is the foremost beauty company in terms of digital initiatives. The company witnessed a 40% year-on-year surge in its e-commerce sales and expects sales through this medium to surpass €1 billion by the end of 2015. L’Oreal’s ongoing research on the Internet of Things aims to provide network connectivity through makeup items with the help of embedded electronics, software, and sensors. [1]

In the beginning of January, L’Oreal launched a stretchable skin sensor called My UV patch. Currently in beta form, the product is designed as a wearable, and it will help educate users about their exposure to ultraviolet rays. The patch will be released under the company’s dermatological skincare brand, La Roche-Posay. This will be the first attempt by a beauty company to introduce wearables among beauty users. [2]

Along with these developments, the company has chalked out large scale expansion of its online media as it predicts the rising importance of eCommerce for the future. L’Oréal’s CEO, Jean-Paul Agon, stated that the cosmetics giant is developing itself to become one of the topmost online companies in the future. [3]

 

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Notes:
  1. Connected mascara? L’Oreal explores the Internet of Things, Marketing Magazine, September 17, 2015 []
  2. L’Oreal: Technology is a new way for consumers to experience beauty, Cosmetics design-Europe, Jan 14, 2016 []
  3. L’Oréal Growing E-Commerce Platform After Strong Online Sales, European Supermarket Magazine, Jan 28, 2016 []