October 31, 2018 / 9:33 AM / 17 days ago

L'Oreal shares surge on beauty leader's upbeat China reading

PARIS (Reuters) - L’Oreal’s (OREP.PA) shares rose sharply on Wednesday after buoyant demand in China for high-end labels like Lancome boosted third quarter sales and the cosmetics group dismissed fears of a slowdown in one of the beauty sector’s biggest markets.

A cosmetic display of French cosmetics group L'Oreal is seen at a duty free shop at the Nice International Airport, in Nice, France, October 10, 2018. REUTERS/Eric Gaillard

Shares in the French industry leader, were up 6.6 percent midday, one of the best performers on European markets .

The stock is up nearly 10 percent so far in 2018, though like luxury goods firms which rely on Chinese clients for a big chunk of sales, it had suffered since the summer amid fears a Beijing-Washington trade war would puncture demand.

“Luxury in Asia is flying,” L’Oreal Chairman and CEO Jean-Paul Agon told analysts on Tuesday, after reporting a 7.5 percent rise in comparable sales that far exceeded forecasts.

The company’s luxury division also includes Yves Saint Laurent and Armani make-up and perfumes, and labels like Clarisonic.

“There have been rumors about a slowing down of luxury consumption in Asia. I don’t know where these rumors come from - at least regarding our business, it’s still doing extremely well ... There is absolutely no sign of a slowing down of consumption in China,” Agon added.

L’Oreal joins fashion brands like Gucci-owner Kering (PRTP.PA) or Italian down jacket maker Moncler (MONC.MI) in countering gloomy market views on China.

Several firms have said the strong momentum had spilled into the start of the fourth quarter.

In early October, rumors that Chinese customs agents were carrying out more thorough checks on travelers to find undeclared goods added to investor jitters, fuelling fears it could discourage customers who shop abroad.

But Louis Vuitton-owner LVMH (LVMH.PA) said it should not affect normal tourists, adding that it welcomed moves to crack down on Chinese shopping agents known as daigous who smuggle in goods. Like other luxury firms it also noted that consumption of its wares within China was on the rise.

Some analysts said L’Oreal and beauty firms were particularly well positioned if Chinese demand stayed strong.

“Low-ticket luxury items such as cosmetics are so far holding up much better than high-ticket purchases,” RBC Capital Markets analyst James Edwardes Jones said in a note.

Not all industries are experiencing this resilience. A softer performance in China weighed on speciality chemicals group Clariant (CLN.S), which reported slower third quarter growth on Wednesday.

Banking group Standard Chartered (STAN.L), meanwhile, warned its more emerging markets faced increasing risks from the escalating Sino-U.S. trade war.

($1 = 0.8810 euros)

Reporting by Sudip Kar-Gupta and Sarah White; Editing by Inti Landauro, David Evans and Alexandra Hudson

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