Key Takeaways From L’Oreal’s 2016 Annual Earnings

by Trefis Team
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L'Oreal
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L’Oreal released its 2016 annual results on February 9th. The year ended on a strong note for the company having been boosted by positive growth (~4%) in the global beauty market. The company outperformed the performance of the global beauty market. In Q4, most of its markets including North America, Western Europe (except France), and some of its New Markets such as Eastern Europe, Hispanic Latin America, Japan, and Korea performed well. However, markets such as France showed a decline in all the channels, and the company faced challenges in Hong Kong, China, and India. L’Oreal’s luxury segment, L’Oreal Luxe, still remained its best performer with its innovative products and iconic line of products, while the mass markets recovery continued due to the adaptation of the segment to the contemporary market demands. Though the Active Cosmetics slowed down a bit, it was still a growth driver. With L’Oreal’s recent acquisitions of three brands under this category, its strong leadership position in this segment might continue to flourish. L’Oreal’s Professional segment continued on its weak note but it is expected to show signs of improvement as the hair color market starts gaining momentum and the new product launches by the company last year starts picking up sales. Along with this, there has been management restructurings for further boosting the performance of the Professional division. L’Oreal’s e-commerce sales impressive growth continued like the previous quarters in both its mature and New markets. The year 2016 was one where L’Oreal boosted its market dominance and growth with the help of organic and inorganic growth along with its digital initiatives. L’Oreal is the most advanced beauty company when it comes to digital progress.

The Body Shop Might Be Sold Off Soon

However, one of the biggest highlight of the earnings call was that L’Oreal has started looking for strategic alternatives for its The Body Shop brand. With over 3,000 stores across 66 countries, The Body Shop, which was once a celebrated brand, has been suffering in its performance lately. In 2016, The Body Shop witnessed a 5% decline in its top line to reach €920.8 million. The slowdown in sales in strategically important regions such as Saudi Arabia and Hong Kong were attributed to its weak performance.

L’Oreal Maintained Its Dominance In Most Of Its Important Markets

The company gained market share in each of its three strategic areas: namely its growth accelerated in North America due to the recovery of its Consumer Products division, L’Oreal Luxe’s stellar line of products such as Lancôme, Urban Decay, Yves Saint Laurent, and now the newly acquired IT Cosmetics contributed to its impressive performance, and its Active Cosmetics revenues nearly doubled as a result of its new acquisitions towards the end of 2016. L’Oreal is currently the market leader in the U.S. and the Western European beauty markets with around twice and thrice the market shares of its closest competitors in the respective regions.

Additionally, the company gained market shares in regions of Eastern Europe including Russia, Ukraine, and Poland. In Asia, countries like Indonesia, Thailand, and Australia, South Korea, and Taiwan performed impressively.

In China, the second largest beauty market globally, L’Oreal’s Luxe segment grew by double digits though the Consumer Product division was a bit slow owing to the glitches faced by its 2014 acquisition, Magic Holdings. However, it still maintained its leadership position in the e-commerce channel in China.

2016 annual lrlcy

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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
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