L'Oreal CEO, investors shrug off China weakness

By Dominique Patton

PARIS (Reuters) -The Chinese beauty market will be slightly negative in the second half of the year, L'Oreal CEO Nicolas Hieronimus said on Wednesday, adding that the French company was not dependent on the market's growth despite undershooting quarterly sales expectations.

L'Oreal reported a 5.3% rise in second quarter like-for-like sales on Tuesday, slightly below consensus, weighed down by a depressed Chinese market, previously one of the world's fastest growing.

Shares rose 2% on Wednesday, however, with investors reassured by a strong performance in Europe and emerging markets and full-year guidance on growth.

"L'Oreal communicated fairly explicitly to the market at the end of June that the Chinese market was not recovering as they hoped. People got the message and had taken that on board," said Barclays analyst Iain Simpson.

Hieronimus said last month that the global beauty market was growing more slowly than earlier predicted, at about 4.5%-5%, largely due to the lack of a rebound in China.

In a call with analysts on Wednesday, the CEO said the Chinese market contracted between 2% and 3% in the first half, with luxury beauty products down by high single digits, while mass market products rose slightly.

China is not improving and is expected to remain "slightly negative" into the second half, he added, with arrivals on the duty-free Chinese island of Hainan also below expectations.

But Hieronimus flagged the company's continued Chinese market share gains, with opportunities to grow that further with more innovation and better value products, including skincare refills that help consumers save money.

"I would love to have a growing China, but we are not dependent upon a growing China," he said.

North Asia has not contributed meaningful growth for L'Oreal since the first quarter of 2021, Barclays' Simpson said, adding that weakness in the region was more than offset by growth in Europe where the business was 42% bigger in the first half than in the same period of 2019.

The region will continue to generate strong growth with consumer confidence really picking up, Hieronimus said.

Global travel retail is expected to grow again from the third quarter, while Hieronimus said L'Oreal is aiming to outpace expected growth of 4% in the beauty market in the second half of the year.

(Reporting by Dominique Patton; editing by Jason Neely, Kirsten Donovan)