Slowing Chinese Economy Can’t Stop L’Oreal’s Lipstick Index Surge

    Beauty company L'Oreal beat estimates with its first quarter earnings thanks to sales in China. Overall sales grew 11.4% year-on-year.
    Beauty company L'Oreal beat estimates with its first quarter earnings thanks to sales in China. Photo: L'Oreal Facebook
    Matthew LubinAuthor
      Published   in Finance

    “We are seeing no slowdown” in the Chinese luxury market, L’Oreal CEO Jean-Paul Agon said during the company’s earnings call on Tuesday, April 16th.

    As French beauty brand L’Oreal SA reported its first quarter earnings, it proved that the lipstick economy has strong momentum in China. The company beat estimates with year-on-year sales growth of 11.4 percent.

    The company, which owns Lancôme, Yves Saint Laurent, Giorgio Armani and Kiehl's, showed strong growth across Asia Pacific. Sales in China, along with India, Malaysia, and Indonesia, each saw double-digit year-on-year growth in the quarter. The Asia Pacific market is the company’s largest market, supplanting Western Europe.

    Agon said in the earnings call that the luxury market in China is still growing at around 40 percent. He added that younger Chinese consumers have an “appetite” for seeking out luxury brands, and he doesn’t see much competition from Japanese and Korean brands in China.

    Likely benefiting from Chinese outbound travelers, as well as the growth in online shopping throughout Asia, L’Oreal confirmed that its e-commerce sales increased 43.7 percent year-on-year. Additionally, the company also said that its travel retail division continues to see rapid growth after surpassing the 2.26 billion (€2 billion) mark last year.

    Travel retail may continue to benefit from China’s crackdown on the daigou market — cross-border personal shoppers, who buy clothes, accessories, and cosmetics overseas for resale in China. Smaller luxury products, such as cosmetics, are easier for travelers to transport back to China without raising red flags when passing through customs.

    Agon said that the company is confident it will “outperform the market in 2019 and see another year of growth in sales and profits.” The Asia Pacific market should see low double-digit sales growth in the year, he added.

    The company expects further growth in China following the launch of the active cosmetic brand CeraVe. L’Oreal also noted that Stylenanda, a South Korea-based clothing brand, which it acquired last year, was also launched in China and is expected to help drive the consumer products division sales.

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