How Important Is Its Asia Pacific Business For L’Oreal?

LRLCY: L'Oreal logo

In its latest earnings report, the L’Oreal group reported a strong growth of 30% (y-o-y) in its Asia Pacific business – increasing the region’s contribution to the top line to an all-time high of 31%. Notably, the company’s Asia Pacific business remains the lone bright spot, with revenues from North America as well as Europe largely stagnating over recent years.

Trefis captures the trends in L’Oreal’s Revenues along with detailed changes by geography in an interactive dashboard, key parts of which are highlighted below. The dashboard also shows our forecasts for full-year 2019 along with our estimate for L’Oreal’s valuation. Additionally, you can find more of our Consumer Sector Discretionary data here.

A Quick Look At L’Oreal’s Revenues by Geography

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L’Oreal’s total sales have increased from €21.5 billion in 2014 to €27 billion in 2018, increasing at a CAGR of 5.6%. Among the three reported geographical regions, North America and New Markets have been growing strongly at a CAGR of 7.6% and 7.8%, respectively, while the Western Europe region only grew at a CAGR of 1.6%.

  • In 2014, Western Europe, North America, and New Markets had a contribution of 35%, 25% and 40% to the group sales, respectively.
  • In 2018, the share of North America and New Markets increased to 27% and 43%, respectively, while Western Europe’s share fell to 30%.
  • Stagnating sales in Western Europe have been largely attributed to sluggishness in France.
  • On observing quarterly sales of the last two years, the Asia Pacific region (which is a part of the New Markets reporting region) has grown at an average rate of 20% (y-o-y), thanks to growing demand from China.
  • However, after growing steadily for three years, the North American region observed a decline in 2018 that could largely be attributed to a slowdown in the U.S. economy. The sales declines have continued in 2019, with Q1’19 numbers coming in9.5%  lower y-o-y.
  • To revive growth, the Fed decreased its target rate by 25 basis points recently. As the effects of the rate cut will be visible only after some time, we expect L’Oreal’s North American revenues to trend higher only towards the end of the year.


Growth In The Company’s High-Margin L’Oreal Luxe Product Line Will Add Long-Term Value

  • Asia Pacific region has been observing strong growth across all product lines: Professional, Consumer, Luxe, and Active Cosmetics.
  • L’Oreal Luxe, which caters to the luxury market with skincare, make-up, and perfume products, has been growing at a CAGR of 11% in the last five years supported by an increase in purchasing power of middle and upper-middle classes.
  • Strong growth in the Asia Pacific region together with the increasing demand for L’Oreal’s luxury brands will potentially offset over sales declines from the North American segment in 2019.

Based on our forecast, L’Oreal’s EPS for full-year 2019 is likely to be around $8.82. Using this figure with our estimated P/E ratio of 30.5x, this works out to a price estimate of $53 for L’Oreal’s stock (shows cash and valuation analysis), which is largely around the current market price.

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