‘Lipstick effect’ boosts L’Oreal sales as crisis-weary consumers turn to beauty

By Dominique Patton

PARIS, April 22 (Reuters) – L’Oreal posted its fastest quarterly sales growth in two years on Wednesday and said it was optimistic about growth, despite growing concerns about a hit to consumer confidence from the ongoing war in the Middle East. 

The Paris-based maker of Kerastase shampoo and YSL Libre perfume said first-quarter sales rose 6.7% on an adjusted like-for-like basis, as consumers in the U.S., China and Europe all bought more of its premium hair products and perfume.

The growth rate was adjusted for overstocking in both last year’s first quarter and this year’s due to an ongoing overhaul of the group’s IT system. 

“This is a strong performance, especially in the context of peers struggling with demand,” said analysts at Jefferies. 

Total sales for the three months to end-March came to 12.2 billion euros ($14.32 billion).

The world’s largest cosmetics firm typically outperforms the global beauty market, leveraging its wide-ranging portfolio from mass-market L’Oreal Paris brand makeup to high-end perfumes and creams prescribed by dermatologists to benefit from shifts in consumer spending.

While L’Oreal said demand in the Middle East has been impacted by the U.S.-Israeli conflict with Iran, particularly in the UAE, and it expected a greater impact in the second quarter, sales in the region account for less than 3% of total sales, and the impact was expected to be “manageable,” said CEO Nicolas Hieronimus. 

Spending in its other regions, meanwhile, has so far proved resilient. 

It recorded double-digit growth in other emerging markets and reported a 7.6% rise in sales in North America, its second-largest region behind Europe.

In Europe, the group is outpacing the market in each of its divisions, with sales up 5.5%, said Hieronimus.

“Europe, for me, is the absolute demonstration of what we call the ‘lipstick effect’ or the dopamine effect of beauty,” he told analysts on a call, with consumers buying cosmetics to feel better in stressful times. “We see it in several categories,” he said, adding that L’Oreal expected the market to remain positive with the group “determined to continue to outperform.”

The outlook follows more cautious reports from companies concerned about the impact of the conflict in the Middle East. Luxury groups LVMH, Hermes and Kering all blamed the war for slower-than-expected growth in the first quarter, while companies in a range of other sectors have warned that the war is driving up costs, disrupting supply chains and hurting consumer confidence, clouding financial outlooks.

“L’Oreal screens as a relative winner thanks to its strong exposure to mass beauty, where products remain affordable and consumers can trade down within the portfolio,” said Barclays analysts in an April 17 note.

So far, L’Oreal had seen “absolutely no change in beauty consumption patterns,” said Hieronimus, though added the company may need to raise prices to offset higher plastic and logistics costs.

($1 = 0.8519 euros)

(Reporting by Dominique Patton; Editing by Elaine Hardcastle and Nick Zieminski)