L’Oreal SA shares fell after the cosmetics maker reported weaker-than-expected sales growth, hurt by a challenging travel retail market in China and Korea.
Like-for-like sales rose 11.1% in the third quarter, the French company said Thursday, below analysts’ estimates. Sales in the North Asia region unexpectedly tumbled 4.8%.
“North Asia continued to be impacted by the reset in travel retail following the change in policy regarding daigous,” the company said, referring to the practice of Chinese tourists buying on behalf of others when traveling. The hit affected in particular the island of Hainan, a tropical island in the country’s South, as well as South Korea.
The shares dropped as much as 3.7% in Paris early Friday, trimming the gain this year to 12%.
The difficult travel retail situation had been previously highlighted by management after Chinese authorities started cracking down on the daigou trade earlier this year. On a conference call, executives said the impact is limited, and predicted improvement in 2024.
L’Oreal follows disappointing results last week at luxury group LVMH Moet Hennessy Louis Vuitton SE, whose perfume and cosmetics unit also missed estimates. L’Oreal’s poor performance in North Asia outweighed otherwise strong results in Europe and North America.
L’Oreal’s consumer products division, with labels such as Maybelline New York and L’Oreal Paris, grew more than 13% in the period, far outpacing the 3.2% growth at its luxury unit. Customers have been trading down to lower-priced brands as inflation continues to squeeze household budgets.
“Luxe and North Asia materially trailed market expectations due to a more painful-than-expected reset quarter for Asian travel retail (Hainan/Korea) and an overall sluggish recovery of the Chinese beauty market,” Rogerio Fujimori, analyst at Stifel wrote in a note.
(Updates with share performance in 3rd paragraph, analyst comment in 9th)
