By Andrea Figueras

L'Oreal posted sales below analysts' expectations in the third quarter at a time when cosmetics makers are contending with shrinking demand in key markets, particularly in China.

The French beauty company--home to brands including L'Oreal Paris, Garnier and Maybelline New York--booked sales of 10.28 billion euros ($11.12 billion) in the quarter, up 2.8% on year in reported terms and 3.4% on a like-for-like basis. However, the figure came shy of analysts' forecasts of 10.50 billion euros, according to Visible Alpha consensus.

Chief Executive Nicolas Hieronimus said China had become an increasingly challenging market, but the company believes the recent stimulus measures from Beijing will help boost consumer confidence in the country.

Economic turmoil in China has led consumers to tighten their belts and cut back on spending, shifting their purchases to local brands, especially those in the lower price range.

Chinese shoppers have long been a source of growth for brands across a variety of sectors, but the country's economic downturn and the rise of domestic competitors have dented the fortunes of the companies that have long relied on them.

Following a surge in sales across regions at the height of the pandemic, beauty companies are now struggling with lackluster demand.

Earlier this month, U.S. peer Coty--which houses brands such as Max Factor and Lancaster--said it anticipates a sales slowdown in its fiscal second quarter due to weaker beauty product sales and falling demand, particularly in its home market. Coty joined U.S. rival Estee Lauder, owner of brands like Clinique and La Mer, which recently signaled a downward trend, especially in the Chinese and U.S. markets.

L'Oreal's sales in North Asia declined 6.5% on a like-for-like basis and 4.4% in reported terms in the third quarter, as the beauty market in Mainland China continued to deteriorate. Hieronimus said in an earnings call that the group isn't expecting any change in the macroeconomic landscape in the fourth quarter, when China tends to weigh more on sales.

Apart from waning demand in the country, large beauty companies also face lower travel retail sales--including those at duty-free shops in airports--due to lower spending by Chinese tourists.

"While Travel Retail returned to growth in the third quarter, sell-out in Hainan in particular remained under pressure," the company said.

Despite the China hit, L'Oreal reported an increase in quarterly sales in other markets, including North America.

By division, the company saw an 8% increase in sales for its Luxe business, which houses luxury beauty brands Lancome and Kiehl's, among others. The boost comes a week after French luxury conglomerate LVMH Moet Hennessy Louis Vuitton reported 3% organic sales growth for its perfumes and cosmetics business, falling short of consensus estimates.

Despite the uncertain environment, Paris-based L'Oreal said it remained confident it could post growth in sales and operating profit this year as it prepares what it called its own beauty stimulus plan for 2025.

Write to Andrea Figueras at andrea.figueras@wsj.com

(END) Dow Jones Newswires

October 22, 2024 13:23 ET (17:23 GMT)

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