L'Oreal's Fastest Sales Growth in 8 Years Offset by Euro

(Bloomberg) -- L’Oreal SA’s fastest growth in eight years wasn’t enough to make up for unfavorable exchange rates at the start of the year.

Surging demand for its high-end beauty products in China helped lift first-quarter sales by 6.8 percent on a like-for-like basis, the Paris-based company said Thursday in a statement, beating analysts’ average estimate of 5.5 percent. Still, reported revenue dropped 1 percent because of the euro’s gain against currencies in countries including the U.S. and Brazil.

The strong sales augur well for the future despite the unfavorable exchange rates, said Chief Executive Officer Jean-Paul Agon. The euro averaged about 17 cents higher against the dollar in the first quarter compared with a year earlier.

“We are pretty confident that the consumer division should be able to accelerate quarter after quarter during the year,” Agon said on a conference call after the results were released, adding that the luxury division’s rapid growth in China also showed no signs of slowing.

Shares of L’Oreal fell 0.3 percent to 190.15 euros at 9:22 a.m. in Paris.

Luxury Growth

L’Oreal’s four biggest luxury names and the division that sells premium skincare brands like Vichy all grew by more than 10 percent during the quarter. The company’s luxury labels such as Lancome and Kiehl’s have been growing faster than supermarket staples like Garnier as China’s rising middle class discovers a taste for fine skin creams and makeup.

“Chinese consumers’ appetite for luxury products appears unabated and continues to accelerate, as the middle and upper class see their disposable income growing," Martin Deboo, an analyst at Jefferies, wrote in a report. Booming demand in China has also supported luxury leader LVMH, whose shares surged to a record this week as first-quarter sales topped analysts’ estimates.

Still, mass-market products like L’Oreal Paris couldn’t grow fast enough to keep up with the rising euro.

During the quarter, L’Oreal started to take U.S. skin-care brand CeraVe global, launching it last month in 30 new markets. This winter, L’Oreal brought out a new luxury grooming brand for men, House 99, a joint venture with soccer superstar David Beckham. The company also renewed its license with Giorgio Armani SpA to sell perfumes and makeup using the fashion designer’s name for another 30 years.

The company has worked to revitalize its mass-market offer by introducing more naturally inspired products like Garnier Whole Blends shampoo, which features ingredients like avocado oil and coconut water. It has taken that approach to its salon products division as well, creating a new line of organic hair dyes made from indigo and henna that are set to hit the market this spring.

Online sales jumped by more than one-third during the quarter.

To contact the reporter on this story: Robert Williams in Paris at rwilliams323@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Phil Serafino

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