Insights – Despite growth across all divisions of French cosmetics giant L'Oréal Group in Q3 2024, revenue slowed more than expected, with China’s beauty market continuing to face challenges. Wall Street remains pessimistic about future performance.
L'Oréal (OR.PA) dropped 3.81%, trading at €353.25 on October 23. Year-to-date, the stock has declined by 21.65%.
Source: Yahoo Finance, L'Oréal stock price chart (October 23)
On Tuesday, October 22, L'Oréal Group released its Q3 2024 earnings, showing a 3.4% year-over-year increase in revenue at constant exchange rates to €10.28 billion ($11.1 billion), falling short of the 6% growth expected by Visible Alpha. However, growth in Q2 was 5.3%.
Source: L'Oréal Website, L'Oréal Q3 2024 Earnings Report
For the first three quarters of 2024, L'Oréal's revenue grew 6% year-over-year to €32.406 billion. Comparable structure and constant currency same-store sales increased by 6%, while Q3 same-store sales grew by 3.4%, missing the expected 5.88%.
By region, sales declined by 6.5% in North Asia (mainly China), while other regions saw a recovery. Europe posted a 5.6% increase, North America rose by 5.2%, SAPMENE-SSA (South Asia, Pacific, Middle East, North Africa, Sub-Saharan Africa) grew by 8.0%, and Latin America jumped by 8.6%.
However, both L'Oréal and the market remain concerned about weak sales in China.CEO Nicolas Hieronimus noted, "The Chinese market declined by single digits in Q3, with the luxury segment seeing the steepest drop, down by double digits."
Analysts at RBC pointed out that the last time L'Oréal reported quarterly growth below this level was in Q3 2020, during the darkest days of the COVID-19 pandemic.
Investors may have a negative view of the magnitude and breadth of this miss. Barclays noted, "L'Oréal has missed expectations in three of the last four quarters, and the situation in China has been even worse than we feared."
JPMorgan expects L'Oréal to face challenges in Q4 2024 and Q1 2025. Deutsche Bank analysts reiterated their "sell" rating on L'Oréal's stock.
