- Revenue: Sales increased by 7.5%.
- Like-for-Like Growth: 7.3%.
- Gross Margin: 74.8%, up 50 basis points.
- Operating Margin: 20.8%, up 10 basis points.
- Net Profit: EUR 3.65 billion, an increase of 8.8%.
- Professional Products Growth: 5.7%.
- Consumer Products Growth: 8.9%.
- Luxe Division Growth: 2.3%.
- Dermatological Beauty Growth: 16.4%.
- Europe Region Growth: 11.1%.
- North America Growth: 7.8%.
- North Asia Sales Decline: 1.7%.
- Emerging Markets Growth: 14.7%.
- Skincare Growth: 5.4%.
- Makeup Growth: 8.8%.
- Haircare Growth: 14.9%.
- Perfumes Growth: 14%.
- Hair Coloring Growth: 4%.
- Research and Innovation Expenses: EUR 667 million, 3% of sales.
- Advertising and Promotional Expenses: EUR 427 million, 32.1% of sales.
- SG&A Expenses: Increased by 12.3%.
- Operating Profit: EUR 4.5 billion, up 8%.
- Net Financial Result: Negative EUR 131 million.
- Income Tax: EUR 1.2 billion, tax rate of 23.7%.
- Net Profit After Nonrecurring Items: EUR 3.6 billion, up 8.8%.
- Gross Cash Flow: EUR 4.5 billion, up 3.1%.
- Capital Expenditure: EUR 781 million, 3.5% of sales.
- Net Operating Cash Flow: EUR 1.9 billion.
- Net Debt: EUR 6.4 billion.
- Gearing Ratio: 21.8%.
- Financial Leverage: 1.2 times.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- L'Oreal SA (LRLCF, Financial) reported a strong like-for-like sales growth of 7.3% in the first half of 2024, outperforming the global beauty market growth of 5-6%.
- The company achieved a record gross margin of 74.8%, up 50 basis points, and an operating margin of 20.8%, up 10 basis points.
- Net profit increased by 8.8% to EUR 3.65 billion, demonstrating robust financial performance.
- All divisions reported growth on a like-for-like basis, with Dermatological Beauty leading at 16.4% growth.
- Emerging markets showed dynamic growth at 14.7%, with significant contributions from SAPMENA-SSA and Latin America.
Negative Points
- Foreign exchange had a negative impact of 2.3% on sales due to the appreciation of the euro against key currencies.
- Sales in North Asia declined by 1.7%, primarily due to renewed weakness in the mainland Chinese market.
- Travel retail continued to weigh on growth in the first half, although momentum is improving sequentially.
- SG&A expenses increased by 12.3%, partly due to the consolidation of Aesop and investments in tech and data.
- The net financial result was a negative EUR 131 million, impacted by the acquisition of Aesop and the cost of servicing foreign currency debt in Argentina.
Q & A Highlights
Q: You're guiding for 4.5% market growth this year after 5% to 6% growth in H1. Given that, would it be reasonable to assume that L'Oréal's growth will be fairly evenly balanced between H1 and H2 this year?
A: We expect around 4% growth in the second half, which is a minimum. We aim to continue outperforming the market. Haircare and fragrance premiumization are driven by structural factors, including younger consumers and increased diversity, which should sustain growth.
Q: Do we expect Mainland China to be slightly up for the year or at least slightly up in the second half?
A: We expect the Chinese market to remain slightly negative in the second half. The market is driven by consumer confidence, which is currently low due to economic factors. However, we remain optimistic about the mid-to-long-term opportunities in China.
Q: Can you comment on the slowdown in emerging markets ex-China?
A: The slowdown is partly due to external factors like Argentina's economic situation and boycotts in Indonesia. Despite these challenges, we continue to gain market share in most regions and categories.
Q: What is the sustainable run rate for Europe given the recent strong performance?
A: While Europe may not remain at double-digit growth, we expect it to perform significantly above historical levels. Consumer confidence is picking up, and we have strong launch plans across all divisions.
Q: What was the impact of Asia travel retail on your Q2 like-for-like sales?
A: The first quarter was very negative, but the second quarter was just a bit negative. We expect to enter positive territory in Q3 onwards.
Q: Should we consider the H1 gross margin development as a good indication for the full year?
A: The gross margin will continue to improve, but the favorable impact of input cost decreases will be less strong in the second half. We confirm that the second half will show better operating leverage.
Q: How do you see the balance between growing share and stimulating the market in China?
A: Stimulating the market is about innovation and justifying price points. We aim to gain share through superior product quality, not through heavy discounting.
Q: What are the key changes made since acquiring AÄ“sop, and what is the current growth run rate for the brand?
A: We have continued to open new doors and are working on product innovations, particularly in face care. The first L'Oréal-developed product for Aēsop will launch by summer 2025.
Q: How is CeraVe performing in India since its launch?
A: The initial results are positive, but it's too soon for a significant impact. We are focusing on building credibility with the medical community before expanding further.
Q: How is working directly with Amazon in the US impacting your growth?
A: It has been a growth accelerator, helping us recruit new consumers and clean up the market from gray market sales. We recently launched Kiehl's on Amazon, and it is off to a great start.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
