L'Oreal's Asian Sales Overtake Europe for First Time

(Bloomberg) --

L’Oreal SA got more revenue from Asia than from western Europe for the first time last quarter as the region’s surging demand for luxury products continued to resist the drag of a slower Chinese economy.

The shift for the maker of products like Maybelline mascara and Acqua di Gio Armani cologne is the latest example of how French companies have become increasingly dependent on Asia -- and particularly China -- to maintain growth. Ten years ago, L’Oreal’s Asian sales were less than a third of those in its home market of western Europe.

Asia’s importance to L’Oreal is almost certain to keep growing as many European economies stagnate or even shrink, and as China implements policies to encourage its citizens to shop on the mainland rather than during foreign vacations or through black-market resellers. Chinese growth seems to be recovering somewhat, with 6.4 percent growth in gross domestic product last quarter, topping economists’ estimates.

“It’s true that the growth is not broad-based,” RBC analyst James Edwardes Jones said in a note to clients, “but given L’Oreal’s proven ability to identify, stimulate and capitalize on those parts of the business where the most attractive growth is to be had, we struggle to find fault with this.”

Real Appetite

The results show luxury’s resilience, as surging demand from Chinese shoppers fueled 14 percent quarterly growth for the division selling brands like Armani, Kiehl’s, and YSL. Meanwhile, some other manufacturers of products such as automobiles and electronics were hurt by a slowing Chinese economy.

“It’s a real appetite of the young generation in China to go directly to these luxury brands. It’s really positive for us,” Chief Executive Officer Jean-Paul Agon said on a call with analysts. Western Europe showed some signs of improvement and could post a solid year, Agon said, “but nothing that would compete with what we see in Asia.”

L'Oreal's Asian Sales Overtake Europe for First Time

Paris-based L’Oreal isn’t the only company making French business dependent on China for growth. Leaders in the luxury industry -- where Chinese shoppers are estimated to make up roughly one-third of global sales -- including LVMH Moet Hennessy Louis Vuitton, Gucci owner Kering and Hermes International all figure among France’s biggest companies by market value.

Sales in the company’s biggest division, which markets names like Garnier shampoo and Maybelline mascara, continued to lag behind. Garnier tried to spark growth among shoppers concerned about chemicals in beauty products with a line of organics like lavender-infused moisturizer.

Active cosmetics, L’Oreal’s premium skin-care division with brands like Laroche Posay, was another bright spot for the group. L’Oreal said sales of the American brand CeraVe -- which they acquired in 2017 -- rose more than 40 percent during the quarter after they rolled out the dermatology-inspired label worldwide.

First-quarter revenue rose 7.7 percent excluding currency shifts to 7.55 billion euros ($8.53 billion), the world’s biggest cosmetics maker said in a statement after Paris markets closed Tuesday. Analysts had predicted 7.4 billion euros.

L’Oreal’s stock rose as much as 1.6 percent to 244.20 euros in Paris trading Wednesday. The company’s shares have gained 21 percent this year. Last week, the company surpassed gas-and-oil giant Total SA to become France’s second-largest company by market value.

©2019 Bloomberg L.P.