L’Oreal Shares Dip as Q4 Sales Miss Expectations

L’Oreal, the French cosmetics giant, faced a decline in its share value on Friday following the release of its fourth-quarter sales report, which fell short of market expectations. The company’s sales figures, totalling 10.6 billion euros ($11.4 billion), reflected a 6.9% increase compared to the previous year’s quarter but failed to meet consensus estimates, notably in the Asian market.

Despite growth in all regions except North Asia, where sales experienced a 6.2% decline to 2.97 billion euros, L’Oreal’s overall performance was hampered by challenges in the Asian market. The company cited issues with its travel retail business, attributed to stricter control measures by the Chinese government over resellers, known as “daigou.” These resellers, who typically acquire inventory at lower prices from other markets and sell them at discounted rates in mainland China, faced increased scrutiny, impacting L’Oreal’s sales.

The disappointing results prompted a 5.5% drop in L’Oreal shares by late morning in Paris, reflecting investor concerns over the company’s performance in a key market. However, CEO Nicolas Hieronimus expressed optimism about the Chinese market’s potential, highlighting a “pretty positive” performance in January and projecting more ambitious growth in the second half of the year.

Analysts offered mixed perspectives on the challenges facing L’Oreal, with some anticipating prolonged issues in Asia’s travel retail sector, while others viewed the headwinds in China as structural rather than cyclical.

Despite the sales setback, L’Oreal outperformed its main competitor, Estee Lauder, whose overall sales declined by 8% in the same quarter. However, L’Oreal’s forward price-to-earnings ratio, based on projected earnings, trailed behind Estee Lauder, indicating differing investor perceptions of the two companies’ future prospects.

In response to market conditions, L’Oreal announced plans to initiate a share buyback program, aiming to repurchase shares worth 500 million to 750 million euros. Additionally, the company revealed a strategic partnership with high-end fashion label Miu Miu for the development and distribution of beauty products, including fragrances scheduled for launch in 2025.

Despite the challenges in the Asian market, L’Oreal remains focused on innovation and strategic partnerships to drive growth and maintain its position as a leader in the global cosmetics industry.