Chinese sales will not recover until mid-2023, says L’Oréal

L’Oréal, the world’s largest beauty company, has warned that Chinese demand will not fully recover until the middle of the year following a challenging 2022 when the country’s zero-Covid restrictions hit sales.

“December and January were very low [in terms of] consumption . . . but from the first weeks of February we saw positive signs in terms of traffic,” chief executive Nicolas Hieronimus said on Friday.

“China will rebound from the second quarter, but it will be progressive,” he added, noting that locations where the company’s physical presence was strongest would benefit the most.

Despite a difficult picture in China, sales at the beauty group soared to nearly 25 per cent above pre-pandemic levels last year to €38.3bn after L’Oréal reported 10.9 per cent like-for-like sales growth across all its markets.

But the outlook for this year is more subdued. Hieronimus forecast that the beauty industry would grow 4 to 5 per cent in 2023 and said that L’Oréal would be able to outperform the market. US-based competitor Estée Lauder, by contrast, forecast a drop in profits for 2023 after US sales contracted in recent months.

China had been the key growth engine for L’Oréal in previous years but like-for-like sales, which strip out currency fluctuations, fell last year as Covid restrictions took their toll.

Still, L’Oréal performed well above the rest of the market, delivering full year sales growth of 5.5 per cent in China — lifted into positive territory by a 7 per cent foreign exchange boost — while the rest of the industry contracted by 5 per cent.

“It’s been a very challenging market,” group chief financial officer Christophe Babule told the Financial Times, but he remained “very optimistic” about the group’s long-term growth prospects in the world’s second-largest economy.

Consumption in China’s smaller cities had remained flat as they were less impacted by Covid restrictions, while the larger cities emerging from lockdown are now ramping up. “There are millions of middle class consumers to reach. We are also not very present in China’s tier 3 and 4 cities . . . so there is a lot of opportunity to build on there,” Babule added.

Karel Zoete, analyst at Kepler Cheuvreux, said “L’Oréal has benefited strongly from the growth of China and online growth, so any indication that the momentum in China has changed is key.”

Despite the challenging environment, Chinese consumers drove growth in the company’s luxury segment — which includes high end names such as Yves Saint Laurent and Helena Rubinstein — particularly in premium perfumes, as well as specialist skincare, where many products sold out their stocks in December.

Earnings per share grew by over a quarter in 2022 to €11.26, while operating profit increased by a fifth year on year to €7.45bn globally, driven by the company’s luxury and consumer offerings.