PARIS — The beauty market has proven itself again in the first half of 2022, despite a very difficult socio-economic and geopolitical environment.
L’Oréal Chief Executive Officer Nicolas Hieronimus hailed the resilience of the beauty market during a conference call with financial analysts and journalists on Friday morning, a day after the company released its second-quarter and half-year 2022 results.
L’Oréal estimates that global beauty market sales increased more than 6 percent in the six months ended June 30 compared to the same period last year.
“However, the pace of the market recovery remains contrasting,” said Hieronimus.
Europe’s beauty market posted an estimated 14 percent growth and had a positive first half compared to 2019 before the coronavirus pandemic hit. “The market has fully recovered with an increase of 8 percent,” said Hieronimus. “North America is maintaining its great pace with the brick-and-mortar market recovery.”
The increase in beauty sales on that continent was about 8 percent over the six months.
“China has experienced a complicated first half due to lockdowns,” he said. “In some cities like Shanghai, the market was negative in April and May but recovered in June compared to 2019. Growth remains high at plus 9 percent for the half-year.”
Hieronimus called emerging markets “quite dynamic” with their reopenings and the acceleration of e-commerce.
According to L’Oréal estimates, the beauty market in South Asia-Pacific, the Middle East, North Africa and Sub-Saharan Africa grew by around 11 percent in the first half of 2022 [or SAPMENA-SSA] Zone, while sales in North Asia fell about 2 percent.
“Each category grows,” Jerome continued. “But let me highlight the strong recovery of makeup, up 8 percent, with lipstick in the double digits [growth]and the continuous fragrance acceleration with a plus of 21 percent.”
Skin care sales increased about 3 percent, while hair care sales increased about 5 percent.
“In this context, L’Oréal shows another [half] a spectacular outperformance that is growing more than twice as fast as the market,” he continued, referring to the company’s sales, which rose 13.5 percent on a comparable basis and 20.9 percent on a reported basis to 18.37 billion euros . “Compared to 2019, L’Oréal is constantly growing by 20 percent.”
Hieronimus said: “L’Oréal is flying at cruising speed over a very uneven landscape with wildly varying comparatives”, explaining why it is important to use 2019 as a benchmark to monitor pace.
In the first half of 2022, L’Oréal’s e-commerce sales increased by 10.6 percent, at a slower pace than in recent years of rapid growth.
“The distribution is being rebalanced by the acceleration of brick-and-mortar retail with a plus of 14.6 percent,” he explained.
Over the same period, four geographic regions — Europe, China, North America and Emerging Markets — contributed almost equally to L’Oréal’s gains.
“This is the ultimate proof of the success of our rebalancing or ‘de-risking’ strategy,” said Hieronimus. “With a plus of 14.3 percent, Europe is number one when it comes to contributing to growth [like-for-like]and up 8 percent over 2019.”
He noted stock increases in all of the company’s businesses in Europe outside of Russia, where L’Oréal shut down almost all of its business.
Despite ongoing supply chain disruptions, North America delivered a strong first half with sales up 11.6 percent. “L’Oréal USA continues to be ahead of the market,” said Hieronimus.
L’Oréal’s sales in emerging markets grew about 24 percent, including 23 percent in SAPMENA-SSA and 22.3 percent in Latin America, driven by the consumer goods division. Sales increased 68.7 percent in the Gulf States, 4.5 percent in India, 42.5 percent in Malaysia and 32.2 percent in Mexico.
“Travel retail is showing strong growth [of 30.1 percent] with the clear recovery in air traffic in the three-digit range in Europe, where we benefit from our fragrance strength,” said Hieronimus, referring to a 425 percent flight peak.
Business on China’s duty-free island of Hainan picked up again in June after a lull in April and May.
Hieronimus noted “the spectacular outperformance” of L’Oréal’s business in North Asia, where there were sales increases of 10.5 percent over the first half of 2021 and 40.5 percent over 2019.
“Korea and Japan have both been dynamic, and L’Oréal is gaining market share, particularly in the luxury space,” he said. “But with China keeping everyone busy and even causing concern, I want to highlight the ability of our teams on the ground to deliver.
“In mainland China affected by COVID[-19] Restrictions and in particular the lockdown in Shanghai which resulted in a negative market at minus 7 in the second quarter [percent]L’Oréal China posted net sales up 6 percent [the second quarter]. In the sell-off, if you take China plus Hainan, we achieved growth of plus 13 percent in the first half.”
At the same time, L’Oréal has captured a share of more than 30 percent of the luxury cosmetics market in China for the first time.
“Looking ahead to the second half of the year, we are both prepared and optimistic,” Hieronimus said of L’Oréal’s business as a whole. “Prepared because we recognize the high level of uncertainty and volatility in the current economic outlook, recession fears, the potential impact of inflation on consumption and ongoing tensions in the supply chain.
“We showed during COVID[-19] that in the event of a downturn, we know how to outperform the market and maintain our profitability,” he added. “We remain confident for the second half of the year and of course for the future of the beauty industry and L’Oréal’s prospects.”
For one, there is constant growth. “Over the past decade, the global beauty market has grown at 4.5 percent per year,” Hieronimus said. “The beauty market also has a long track record of success in times of economic trouble.”
L’Oréal targets upper-middle and upper-class consumers, who are generally less affected by economic turmoil and are growing in number, particularly in emerging markets and China.
“Experts estimate that by 2030 the global middle and upper classes will grow by another billion, including 250 million in China and 200 million in India,” Hieronimus said.
Nonetheless, L’Oréal remains focused on accelerating across emerging markets, building on its strength in the US and solidity in Europe.
“Finally, we are confident that we can overcome the inflationary context,” he said. “We will accept further price increases in the second half of the year.”
Hieronimus continued: “In the current context, we are prepared for the worst, but we are planning for the best – knowing full well that attacking is what drives consumption, market share gains and growth.”
Characterizing L’Oréal as stronger today than before the health crisis, he said the group’s balanced business model is “the best vaccine in a VUCA world”.
“L’Oréal has everything it takes to weather the near-term difficulties related to the microeconomic context and even if the second half will not look as good as the first due to comparisons and one-off effects, we are very satisfied. We are confident that we can beat the market and deliver another year of revenue and earnings growth over the medium and long term,” said Hieronimus.