L’Oreal Expects to Outperform Rivals Amid Temporary Virus Hit

(Bloomberg) -- L’Oreal SA expects demand for high-end beauty products to help it outperform beauty rivals, even as the coronavirus outbreak causes a temporary slowdown in the key market of China, Chief Executive Officer Jean-Paul Agon said.

The shares rose as much as 4% to a record Friday in Paris after the company reported its highest operating margin ever and the strongest revenue growth in more than a decade, driven by Asia.

“It’s all about sales growth,” RBC analyst James Edwardes Jones wrote. Earnings per share missed the consensus, “but who cares?”

The French owner of the Lancome and Kiehl’s brands said late Thursday it’s confident demand in China will bounce back quickly once the epidemic eases. Agon said L’Oreal will beat rivals again this year in terms of sales and profit growth.

Estee Lauder Cos. also said Thursday it expects a short-term hit from the coronavirus, which has killed more than 600 people and prompted travel restrictions.

After China decided to extend the Lunar New Year holiday, all of L’Oreal’s offices and factories are closed in China until Monday.

The company “had a good January in China,” Agon said, saying it’s too early to assess the impact of the outbreak. L’Oreal’s strength in e-commerce in that market will help the company deal with the crisis, he said.

“The good news is we have 12,000 employees in China and I am in communication every day with the general manager in China and no one in our teams is sick,” the CEO said.

Chinese Luxury

L’Oreal’s sales have been fueled in recent quarters by Chinese consumers splashing out on luxury skincare products and makeup, which has made up for a sluggish performance by the company’s mainstream brands like Maybelline in the U.S. The cosmetics maker said its performance for China’s Singles Day holiday in November was exceptional.

The beauty market maintained its pace last year, growing about 5%, driven in large part by online sales of beauty products and consumers buying more expensive products, CEO Agon said on a call with analysts.

China was the main driver of growth in Asia Pacific, which has become L’Oreal’s largest region. Sales rose 18% in both Indonesia and Vietnam, while the Philippines and South Korea also had double-digit growth.

“It was the best year for a very long time in all the countries of Asia,” Agon said. Although there will be an impact from the virus, the CEO said the company’s experience with previous virus outbreaks, shows that after a period of disturbance, consumption “resumes stronger than ever.”

The company has nine brands with annual revenue exceeding 1 billion euros ($1.1 billion), with La Roche Posay being the latest to reach that level.

--With assistance from Albertina Torsoli.

To contact the reporters on this story: Eric Pfanner in London at epfanner1@bloomberg.net;Deirdre Hipwell in London at dhipwell@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net, Thomas Mulier

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