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L'Oreal's Q3 sales growth faces headwinds in China's beauty market

Published Oct 19, 2023 12:42
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L'Oreal, the dominant player in China's $78.9 billion beauty market, is facing investor concerns over a potential shift in consumer preferences towards cheaper or local products, according to Barclays and Deutsche Bank. This comes despite the company's forecasted 11.5% year-on-year organic sales increase for the third quarter, driven by a 14.4% rise in North Asia, particularly China.

The French cosmetics giant experienced a 9% share drop in the Chinese market over the past six months. However, it still outperformed competitors such as Estee Lauder (NYSE:EL), which saw a 45% drop during the same period. JPMorgan has adjusted L’Oreal’s full-year sales growth estimate downward in response to the slowdown in North Asia.

The upcoming Singles' Day sale in China is expected to feature over 40% domestic products, double from last year, according to GF Securities. This trend underscores the rising popularity of local brands such as Hangzhou-based Proya, a development also highlighted by Bernstein.

Despite these challenges, L'Oreal remains a top holding for Tema Luxury ETF. Its portfolio manager Javier Gonzalez Lastra continues to affirm the company's resilience amidst prevailing "premiumisation" trends.

The broader economic environment has also put pressure on L'Oreal's performance. Post-pandemic spending deceleration in Europe and the US coupled with an uneven recovery in China have curtailed rebound expectations. Similar concerns are reflected in the slowing sales growth of LVMH (EPA:LVMH), another heavyweight in the luxury sector.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

L'Oreal's Q3 sales growth faces headwinds in China's beauty market
 

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