How Is L’Oreal’s Fragrance Segment Expected To Trend and Why?

-2.27%
Downside
74.40
Market
72.71
Trefis
LRLCY: L'Oreal logo
LRLCY
L'Oreal

Fragrance accounts for around 13% of our stock price estimate for L’Oreal with 14% of its revenues coming from this category. The cosmetics giant currently enjoys around 16% of the global fragrance market share–the largest share among its competitors. We expect L’Oreal’s fragrance revenues to rise by a CAGR of ~6% between 2016 to 2023. Below, we outline some of the reasons for this.

lrlcy fragrance

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.

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

  • With ~$30 billion in annual sales, L’Oreal is the world’s biggest cosmetics company and it enjoys almost one-fifth of the world’s fragrance market, the largest share owned by a single beauty player.
  • L’Oreal targets reaching out to one billion new customers over the next decade and expects more than three-fourths of its future growth to come from the emerging markets of Asia and Latin America, with the global market being increasingly driven by countries such as China, India, and Brazil, where the middle class is expanding and is eager for high-quality cosmetics products. L’Oreal has been making significant investments in these markets.
  • The wide presence across distribution channels enables L’Oreal to reach out to more consumers than its competitors.
  • 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 currently spends over $1 billion annually in R&D.

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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