L'Oreal down 7% in Paris, China's restrictions on accounts

Thud on the Paris Stock Exchange. L'Oreal is down heavily after disappointing 2023 accounts, linked in particular to performance in China. The title of the world's number one cosmetics company is down more than 7% and is the 'black jersey' of the Cac 40 index, as well as being at the bottom of the Stoxx Europe 600.

Yesterday, after the close of the session, the group that owns Lancome, L'Oréal Paris, Garnier, Maybelline, La Roche-Posay and Vichy announced that revenues totalled EUR 10.61 billion in the fourth quarter, up 2.8% compared to the same period in 2022. Adjusted for currency and scope effects, growth stood at 6.9%, a marked slowdown from 11.1% in the previous quarter. The figure is also below analysts' expectations, which on average were targeting revenue of EUR 11 billion in the final quarter of 2023.

Operating profit for the quarter was EUR 7.45 billion, with a margin of 19.5%. In 2023, L'Oréal's sales reached EUR 41.2 billion, up 11% at constant exchange rates and perimeter and 7.6% on a reported basis. Geographically, while Europe grew by 11.6% to €3.3 billion in the quarter and 16% to €13 billion for the year, the US by 9.4% to €2.8 billion and 11.8% to €11.5 billion respectively, North Asia declined by 6.2% to €2.96 billion in the quarter and 5.8% to €10.7 billion for the year. L'Oréal explained that the region was 'impacted by new regulations on travel retail, following the change in regulations concerning Daigous', the parallel resale market. These are the restrictions introduced by China against the resale of products bought abroad, particularly in duty-free shops. Furthermore, in China itself, which is the largest domestic market for L'Oréal after the United States, the beauty market remained 'flat'. Operating profit stood at EUR 8.1 billion in 2023, up from EUR 7.46 billion in 2022, showing a margin on sales of 19.8 per cent, which is a 'record' level, L'Oreal pointed out. The group's net profit increased by 8.4 per cent year-on-year to EUR 6.18 billion. Analysts had expected an average net profit of 6.49 billion, an operating profit of 8.2 billion and sales of 41.5 billion. "Against a backdrop of geopolitical tensions, inflationary pressures and a stagnant beauty market in China, we achieved our best comparable growth in more than 20 years, excluding 2021," the group's CEO, Nicolas Hieronimus, quoted in a press release. "As we advance into 2024, we remain optimistic about the outlook for the beauty market and confident in our ability to continue to outperform and deliver another year of revenue and profit growth," the Ceo added. The group will propose at the forthcoming AGM to pay a dividend of €6.6 per share for the 2023 financial year, compared to €6 for the 2022 financial year. "North Asia and the luxury segment performed well below expectations and we believe the headwinds in China are structural and not just cyclical," Deutsche Bank analysts wrote in a note. Jefferies experts note that L'Oréal's performance in 2023 is disappointing. Among other things, the Luxury division's numbers are also below expectations, as sales increased by 0.4 per cent to EUR 4.14 billion, while the consensus expected growth of 3.8 per cent. Jefferies considers these figures a 'nasty surprise for the market'.