L’Oreal’s Solid Growth Was Boosted By Luxury and Active Cosmetics Segments, Along With Emerging Markets Like China

by Trefis Team
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L'Oreal
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L’Oreal‘s (OTCMKTS: LRLCY) growth engine seems to be going ahead at full steam. After a strong 2016, the company reported a 4.5% like-for-like growth in its total sales to reach €19.5 billion for the first nine months of 2017. The star performers as usual were the Active Cosmetics and the L’Oreal Luxe segments. L’Oreal’s strategic acquisitions are proving to be key drivers of its performance. One of the key brands driving its Active Cosmetics Segment’s growth was its 2017 acquired brand, Cera Ve. The four most important brands for the growth in the Luxe segment had been: Lancôme, Yves Saint Laurent, Giorgio Armani, and Kiehl’s, along with its 2016 acquisition, IT Cosmetics. Geographically L’Oreal’s new markets are some of the best performers, particularly the Asia Pacific market in which China stole the limelight. It is noteworthy that Estee Lauder’s recent performance was also boosted by China. The country is emerging as one of the most important markets for the growth in beauty sales. Western Europe was also another key market that drove L’Oreal’s growth. We have a $43 price estimate for L’Oreal’s stock, which is around 6% lower than the current market price.
 L’Oreal’s Luxe And Active Cosmetics Segments Were The Primary Growth Drivers
By the first nine months of 2017, L’Oreal’s Luxe Segment had grown by ~11% like-for-like driven by makeup and facial skincare sales. The segment’s double digit growth in Asia Pacific was driven by markets like China and Hong Kong and through the channels of travel retail and e-commerce. Travel retail has been a very important source to drive the sales of luxury cosmetics. Along with the growth in passenger traffic and conversion of the passengers to buyers, this channel will continue to be one of the most important ones for the sales of luxury beauty products. Chinese travelers are the highest spenders both domestically as well as internationally and hence the Chinese are one of the most important groups to be boosting travel retail sales.

L’Oreal’s Active Cosmetics Segment grew by 5% like-for-like for the first nine months and the best selling brands have been La Roche-Posay, Vichy, Cera Ve, and Skinceuticals. L’Oreal is one of the leading names in the active cosmetics market. In an effort to further grow its active cosmetics segment, towards the beginning of 2017, L’Oreal acquired the skincare brands, CeraVe, AcneFree, and Ambi from Valeant Pharmaceuticals for a sum of $1.3 billion. These brands are quite popular with health professionals and are expected to almost double the revenue for its active cosmetics division in the U.S. The brands are expected to strengthen the company’s ties with health professionals who are a key towards developing products in the active cosmetics market. L’Oreal’s market position in North America, the fastest growing geography for active cosmetics, is expected to grow further due to the acquisitions. In fact, in Q3 2017, Cera Ve has demonstrated double digit growth in North America. According to a report by Research and Markets, the global cosmeceutical market is expected to grow at a CAGR of nearly 6% between the period of 2017 to 2021. L’Oreal’s acquisitions are expected to aid it in further growing its active cosmetics business and thus increase its market share in segments such as skincare. 

(Note: Like-for-like growth implies growth based on a comparable structure and identical exchange rates.)

 

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