Boosted By Organic And Inorganic Growth, L’Oreal Might Deliver Another Healthy Quarter In Q3 2017

by Trefis Team
-6.94%
Downside
46.65
Market
43.41
Trefis
LRLCY
L'Oreal
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L’Oreal (OTCMKTS: LRLCY) is slated to release its Q3 2017 earnings on November 2nd. The company outperformed the global beauty market and ended 2016 with a 4% y-o-y growth. Its growth continued in the first half of 2017 driven by its organic growth and the impressive performance of some of its divisions. Two of its divisions: L’Oreal Luxe and Active Cosmetics are growing rapidly while the performance of its Consumer Products division showed steady improvement while braving the weak performance in regions such as the U.S., Brazil, India, and the Middle East. The only division that is currently lagging behind is its Professional Products division, however gradual improvement was witnessed in this segment as well in the second quarter. The digital sales accounted for 7% of the total sales and grew by almost 30% y-o-y for the first half of 2017. We have a $43 price estimate for L’Oreal’s stock, which is around 2% lower than the current market price.

L’Oreal’s Selling Off Of The Body Shop Might Increase Its Profitability
Recently, L’Oreal decided to sell off its The Body Shop brand to the leading Brazilian beauty company, Natura Cosmetics, for €1 billion. The brand has been persistent in its weak performance under L’Oreal’s umbrella, hence, selling it off seemed like a good decision for L’Oreal. In 2016, The Body Shop’s sales declined by 5% y-o-y to around €921 million and its operating profit declined by 38% y-o-y to €34 million. The brand has been going through a rough phase over the last few years. After the sell off is completed, L’Oreal will not have to bear the burden of The Body Shop’s constant losses. This might help boost the company’s growth even further while it can invest the cash received from the sale for more profitable ventures.

L’Oreal’s New Digital Investment

L’Oreal is currently the third largest advertiser in the world and it spends over $1 billion on its digital initiatives, annually. It is currently planning on launching a program in Paris that will involve the collaboration of start-ups in order to produce more products like its previously launched innovative ‘smart’ hairbrushes and UV skin patches. The company aims at collaborating with 10 to 12 startups in the Paris site in order to develop more innovative technology for beauty every year. In its current initiative, L’Oreal will not only focus on digital enhancements for the sale of its beauty products such as artificial intelligence or connected makeup products, but it will also emphasize the development of more innovative beauty formulations in its skin care, makeup, and hair care segments. Such initiatives will further boost L’Oreal’s offerings of innovative beauty products thus aiding it in maintaining its dominance in the global beauty industry.

 

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Notes:

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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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