How Is L’Oreal’s Makeup Business Expected To Trend?

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LRLCY: L'Oreal logo
LRLCY
L'Oreal

L’Oreal’s makeup division contributes to around 21% of its revenues and around 18% of our stock price valuation of the company. The cosmetics giant is currently the leader in the makeup market enjoying around 16% of the global market share.  We expect L’Oreal’s makeup revenues to rise by a CAGR of ~5% over the next 5 years. Below, we outline some of the reasons for this.

lrlcy makeup share

 

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Note: Retailers Average Gross Profit is the gross income earned by the distributor or retailer on account of selling. This income is used for paying expenses on rents, staff, and other logistics and admin costs, leaving the seller with a net income (profit). L’Oreal’s revenues are calculated after subtracting the retailer’s profit margin from its total market share. We expect the retailer’s gross profit margin to remain at around 42% over the five year period.

Reasons Behind The Expected Growth In L’Oreal’s Makeup Market Size

  • With ~$30 billion in annual sales, L’Oreal is the biggest cosmetics company enjoying the largest market share in the makeup segment currently.
  • L’Oreal’s product portfolio ranges from popular luxury brands like Lancome, Georgio Armani, YSL, Biotherm, and Kiehl’s to popular mass brands like L’Oreal Paris, Maybelline, and Garnier. The presence of L’Oreal products across different price points enables the company to maintain and grow its market share.
  • Its presence across large distribution channels enables L’Oreal to reach out to more consumers than its competitors.
  • L’Oreal’s big ticket acquisitions such as NYX Cosmetics ensures that the company will also grow inorganically in the makeup segment.
  • With almost 4,000 researchers and a budget representing ~3% of its sales, L’Oréal has the largest Research and Innovation team in the cosmetics industry. L’Oreal spent more than $1 billion in R&D in 2015. The innovative product lineup as a result of this research, as well as the technological advancements in its offerings (such as trying to connect cosmetics via the Internet of Things), ensures the L’Oreal’s makeup segment growth is going to continue for now.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for L’Oreal