L’Oreal SA, EPA: OR, has had enough disappointments from China.
The beauty giant is now looking to the United States for future growth. It called the country a “land full of opportunity” in its earnings call yesterday night.
After several quarters of weakness, the company has announced its plans to change its focus.
In Q4, L’Oreal’s comparable sales in North Asia fell by 3.6%, much more than the 2.4% predicted by experts.
In the fourth quarter, US sales were up by 1.4% on a comparable basis.
L’Oreal’s China sales are now significantly lower
On the earnings call, L’Oreal’s chief executive Nicolas Hieronimus called China the “big unknow” and said that the company’s growth in Asia’s largest economy had declined by about 4% over the past year.
Beijing accounts for only 17% of the total sales, a dramatic drop from historical levels.
The world’s biggest beauty group has decided to reduce its reliance on China, as it does not anticipate a near-term recovery in travel retail.
L’Oreal believes that China will remain flat in 2025.
Shares of Maybelline, Lancome and Kiehls are down over 4% as of this writing, after China’s weakness caused it to come in below sales estimates for its fiscal fourth quarter.
Why L’Oreal is so bullish about the United States
L’Oreal sees an enormous opportunity in the Latinos and multiracial populations of the United States.
The chief executive of the company noted that this segment could create “a variety of new beauty requirements.”
Nicolas Hieronimus believes the US is a good investment, not only because of its affluent population but also “because it will help drive the growth of our Luxury Division.”
L’Oreal’s CEO, however, did not comment on the specifics of what the Trump administration’s immigration policy and tariff increases could mean for L’Oreal.
He did agree, however, that there are several “unknowns”, in the macro-environment currently.
What drove L’Oreal’s sales in Q4?
Investors should be aware that L’Oreal has taken a bullish stance on emerging markets and the company’s “stronghold” in Europe.
China has been a challenge for Estee Lauder and other competitors in recent years.
In its Q4, French giant saw EUR11.08billion ($11.49billion) in total sales – roughly on par with the EUR11.1billion that experts had predicted.
The consensus estimate was topped by a 5.1% increase to EUR43.48 Billion in sales for the full year.
The company attributes the strength of its quarterly sales to an increase in demand for dermatological beauty products and professional products.
L’Oreal’s earnings announcement last night also highlighted the normalizing trend after a period macro challenges.
L’Oreal’s stock price has dropped more than 25% over the past 12 months.
This post L’Oreal shifts its focus from China to “a land of opportunity”: Here’s why could be modified as new information becomes available
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