Though The First Half Of 2016 Displayed Slight Growth, L’Oreal Seems To Be On Track To Remain The Beauty Leader

L’Oreal witnessed a marginal topline growth (0.6%) in the first half of 2016 and its lukewarm growth was mainly due to currency headwinds and impairment charges worth €447 million. Though most of its acquired brands are growing solidly, brands such as China’s Magic Holding and Clarisonic are still struggling and that led to the repairment charges. L’Oreal’s performance is improving in the erstwhile sluggish North America, though Western Europe still remains weak. The company’s acquisitions and constant innovations are helping it remain on the top of its game. We expect L’Oreal to continue being the beauty leader in the near future and believe the setbacks on its way are mostly macroeconomic or temporary.

Highlights From H2 Performance

L’Oreal’s Luxe division’s strong growth momentum continued in the first half of 2016. L’Oreal’s Consumer Product division outperformed the market growth rate. NYX and Maybelline continue being the star performers in this division. The Professional division is slowly recovering and the Active division remained slow due to an unfavorable season.

Geographically, North America is growing well and so are the New Markets. However, there was slowdown in Western Europe mainly due to weak demand in France.

Despite the success of its acquired brands like NYX, Urban Decay and Niely, some of the acquired brands like Magic and Clarisonic recorded goodwill  impairment of €213 million and €234 million.

L’Oreal’s Current Moves

The Cosmetics giant has been on an acquisition spree in July with the decisions to acquire 1. Premium fragrance brand, Atelier Cologne 2. The France-based spa group Société des Thermes de Saint-Gervais-les-Bains and the license to use the Saint-Gervais Mont-Blanc beauty brand 3. US based prestige beauty company, IT Cosmetics. Also this month, L’Oreal opened its seventh global research and innovation center in Johannesburg.

L’Oreal is the current leader in the beauty market and has the largest global market share among its peers in each of its skincare, makeup, haircare, and fragrance segments. However, Estee Lauder, the global premium beauty leader is close on its heels especially in the fragrance and makeup segments. The acquisitions help L’Oreal to complement its own organic growth and expansion with those of the regional players whose innovative products have the potential for global reach.

Each of L’Oreal’s acquisitions were significant for its future growth.

• Luxury Fragrance seems to be a coveted segment among beauty companies and it is a pretty common sight for the bigger players to acquire the smaller ones. Over the recent past, Estee Lauder acquired the Paris-based prestige fragrance brand, By Kilian, the high end fragrance and sensory lifestyle brand, Le Labo, and Editions de Parfums Frédéric Malle, the storied fragrance brand established by the iconic perfumer Frédéric Malle. Hence, L’Oreal’s acquisition of a fragrance brand seems strategic.
• According to a Bloomberg report, there has been a recent growth in the sale of premium beauty products. L’Oreal’s premium categories were its fastest growing segment in the Q1 2016. The acquisition of IT Cosmetics seemed justified to further boost its premium beauty growth, where its biggest rival Estee Lauder constantly keeps expanding its portfolio with newly acquired brands.
• The beauty industry requires constant innovation and hence L’Oreal’s focus on opening region specific research and innovation centers is crucial for its future growth in the emerging nations.

Have more questions on L’Oreal? See the links below.

• What Is L’Oreal’s Fundamental Value On The Basis Of Its Forecasted 2015 Results?
• How Has L’Oreal’s Revenue And EBITDA Composition Changed Over 2012-2016E?
• L’Oreal: Year 2015 In Review
• What Is L’Oreal’s Fundamental Value Based On 2016 Estimated Numbers?
• L’Oreal’s Q1 2016 Earnings Results
• How Did The Top Two Beauty Companies Perform In The Fragrance Segment Over The Last Five Years?
• How Can L’Oreal’s Digital Investments Help The Company?
• Who Relies More On Debt: L’Oreal Or Estee Lauder?
• What Are Some Of The Trends Expected To Drive The Future Of The Beauty Market?
• Why Might L’Oréal Be Acquiring Luxury Perfume Brand Atelier Cologne?
• How Is L’Oreal’s Revenue Composition Expected To Trend?
• How Is L’Oreal’s Skincare Business Expected To Trend?
• Why Does L’Oreal Want To Acquire The Skincare Brand, Société des Thermes de Saint-Gervais-les-Bains?
• How Is L’Oreal’s Makeup Business Expected To Trend?
• How Do We Expect L’Oreal’s Haircare Segment To Grow Over The Next Five Years?

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