PARIS (Reuters) - Strong demand in Asia for L’Oreal’s (OREP.PA) luxury cosmetics like Lancome fueled sales growth in the fourth quarter, as the world’s biggest beauty products maker faces more muted appetite for its mass market labels, especially in the United States.
Make-up brands around the world are tapping into booming demand from a growing Chinese clientele and from young consumers often influenced by trends they spot on social media.
Demand for premium skin or hair care products is also on the rise alongside a broader revival in the luxury goods industry equally driven by Asian consumers.
L’Oreal and major rivals like U.S.-based Estee Lauder (EL.N) are reaping the benefits even though the French firm makes most of its money from its lower-end consumer products, like Garnier shampoo and Essie nail varnish.
L’Oreal’s mass market business grew three percent in the fourth quarter, year-on-year, crimped by a tough U.S. market but up slightly from the third quarter. Meanwhile, the luxury business notched up near 10 percent growth on a like-for-like basis, which strips out currency swings and acquisitions.
CEO expects “significant growth”
The beauty industry “should remain dynamic and contrasted” in 2018, L’Oreal Chairman and Chief Executive Jean-Paul Agon said in a statement, adding he was confident of significant growth in like-for-like sales.
Operating profitability should increase, Agon said. It hit a record 18 percent in 2017, after L’Oreal sold off the Body Shop, where margins were low.
L’Oreal - which has previously not ruled out buying Nestle’s (NESN.S) 23 percent stake in the firm should its Swiss shareholder want to sell - would have the resources to do so, Agon said separately on Thursday in an interview with the Financial Times.
“We have all the resources for that. We are cash rich,” Agon was quoted as saying. He also pointed to L’Oreal’s 9 percent stake in drugmaker Sanofi (SASY.PA), which analysts have long said could be sold to fund such a purchase.
An agreement between Nestle and L’Oreal’s biggest investors, the Bettencourt family, not to increase their stakes expires in mid-March, following the death last September of matriarch Liliane Bettencourt.
That stirred speculation Nestle could sell out or even look to launch a takeover of L’Oreal, though Agon has previously said the status quo was unlikely to change in the medium-term.
L’Oreal is due to hold an earnings news conference on Feb. 9.
Overall, L’Oreal’s sales rose by a better-than-expected 5.5 percent in the fourth quarter on a comparable basis, and revenues for the whole of 2017 reached 26 billion euros, up 4.8 percent like-for-like, compared to 4.7 percent growth in 2016.
The share of products sold online increased, reaching 7.7 percent of all sales at year-end, up from 5 percent two years earlier. Operating income grew 3 percent in 2017, to 4.7 billion euros.
L’Oreal shares closed down 2.16 percent at 171.8 euros on Thursday before it released earnings. They have fallen 7.1 percent so far this year, after rising 6.7 percent in 2017.
Many of L’Oreal’s peers have also posted better-than-expected revenues or profits for the last three months of 2017, including Clinique owner Estee Lauder and U.S. cosmetics producer Coty (COTY.N).
Editing by Adrian Croft and Elaine Hardcastle