By Mimosa Spencer
PARIS (Reuters) -L'Oreal reported a brisk rise in third quarter sales on Thursday, lifted by growth in Europe and an acceleration in the United States, but missed expectations for a strong rebound in China.
The Paris-based group, which owns labels ranging from Maybelline to Lancome, said sales in North Asia were down 4.8%, missing expectations for a 14.4% rise. The company pointed to an impact on its travel retail business, mostly in Hainan and South Korea, from tighter control by the Chinese government of resellers known as daigou, who would scoop up the inventory at lower prices in one place and resell them at a discount in another.
The travel retail impact will be "temporary and limited," with a small but "totally manageable" effect on margins, L'Oreal chief executive Nicolas Hieronimus said in a conference call with analysts, predicting that inventory reductions would last until the end of the year.
In mainland China, where the beauty market is "broadly stable" despite a "muted recovery," the company said sales grew 7.7% over the first nine months and it continued to gain market share.
China, where high youth unemployment and a property crisis have complicated the country's post-pandemic rebound, has been a key focus for investors.
Even if China has been slow to recover, L'Oreal remains "very ambitious" for the country, Hieronimus said, citing plans to expand labels like Lancome into lower tier cities this year and next year.
L'Oreal, which accounted for the biggest share of the country's $78.9 billion beauty and personal care market last year, has been gaining market share there in recent months, and its luxury division is the market leader in high end cosmetics.
It sells skincare, makeup and fragrance under brands ranging from Maybelline to high-end Helena Rubinstein, as well as Yves Saint Laurent, Valentino and Prada.
In Europe and the North America, L'Oreal beat expectations for the third quarter, up 16.2% and 11.8% respectively, marking an acceleration in North America.
In Europe, inflation has curbed household spending, but L'Oreal said it has seen no sign of shoppers shifting to lower priced products or purchasing less.
Globally, growth at L'Oreal's luxury division, its largest division, slowed, up 3.2%, offering further evidence that shoppers are reining in high end purchases, following a slowdown in perfumes and cosmetics reported by luxury bellwether LVMH (EPA:LVMH) last week.
"We continue to think like for like estimates are too high as signs of downtrading in the category pile up," said Jefferies, referring to L'Oreal's luxury division.
Sales for the three months to the end of September came to 10 billion euros, an 11.1% rise on a like-for-like basis at comparable scope and constant exchange rates, just below expectations for an 11.5% rise, according to consensus estimates cited by Barclays (LON:BARC).
Currencies weighed heavily, with an impact of minus 9% over the quarter.