L'Oreal Expected to Continue to Face Challenges Amid Beauty Slowdown -- Earnings Preview

By Andrea Figueras

L'Oreal is scheduled to report results for the third quarter on Tuesday after markets close in France. Here is what you need to know.

SALES FORECAST: The French beauty giant is expected to post quarterly sales of 10.52 billion euros ($11.43 billion), according to a poll of estimates by 16 analysts compiled by Visible Alpha. In the prior-year period, the company booked sales of 10.0 billion euros.

Shares in L'Oreal fell roughly 17% since the start of the year through Monday's morning trade, and moved down about 2.1% in the past 12 months.

WHAT TO WATCH

-- CHINESE CONSUMERS: The company's performance in China will likely be in focus due to softening trends in the country, which for years has been one of the growth engines for global cosmetics makers. "We had hoped for a rebound in China cosmetics in [the second half], but that now seems unlikely given the current weak state of Chinese consumer confidence," Barclays analysts said in a research note. Besides softening demand in the country, beauty companies are also grappling with lower sales in travel retail, which includes selling at duty-free shops in airports. The plunge in these sales is also related to lower spending from Chinese tourists.

-- BEAUTY SLOWDOWN: The beauty market is currently experiencing slowing growth after a boom during the height of the pandemic. U.S. cosmetics company Coty recently warned of a sales slowdown in the second quarter and said that retailers are tightening their inventories due to slower growth trends and softer demand, particularly in the U.S. This has likely lowered investor expectations around L'Oreal's third-quarter results, particularly among U.S. consumers, which will be a key topic for investors, Barclays analysts said.

-- LUXE DIVISION: L'Oreal Luxe division--which houses a number of luxury beauty brands--is strongly correlated with LVMH's perfumes and cosmetics business. The French luxury empire reported a 3% organic growth for the division, missing Visible Alpha consensus estimates of 5.3%. LVMH's results last week could have lowered expectations for L'Oreal's sales and mirror a softer environment for beauty, Jefferies analysts wrote in a note. Despite the negative readacross, Jefferies believes L'Oreal can achieve consensus estimates of 5.8% growth for its Luxe division.

Write to Andrea Figueras at andrea.figueras@wsj.com

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October 21, 2024 05:09 ET (09:09 GMT)

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