L’Oréal, the world’s biggest cosmetics maker, has said it expects supply chain snarls and inflationary pressures from the pandemic to fade from mid-year as it reported record annual sales driven by strong demand for its high-end perfumes and skin creams.
People seem to have an “infinite appetite for beauty”, said chief executive Nicolas Hieronimus in an interview, adding that he had not seen “any change of consumer behaviour” in the US and Europe despite mounting concerns over inflation eating away at spending power.
But the lingering impact of Covid-19 last year has meant that the 1920s-style beauty boom that L’Oréal predicted a year ago has not fully materialised, as social gatherings remain limited and some people continue to work from home.
Even against this backdrop, the French company behind brands like Lancôme and Kiehl’s delivered forecast-beating sales of €32.2bn last year and operating profit of €6.2bn, in line with analysts’ expectations. Earnings per share rose almost 21 per cent to €8.82.
Given its low levels of debt, L’Oréal said it planned to pay a dividend of €4.80, its highest to date and a 20 per cent increase from a year ago.
The group, which competes with US-listed Estée Lauder on high-end cosmetics and smaller player Coty on fragrances, has managed to absorb pandemic-related disruptions, such as shortages of plastic bottles and pumps and rising prices for some ingredients, by using its clout with suppliers. “Our service levels today are below what we normally deliver, but we do not have lots of products out of stock on shelves, which is what matters most for consumers,” he said.
Hieronimus, who took over as CEO in May, said the pandemic was still influencing people’s choices of beauty and wellness products, as well as fuelling the growth of ecommerce, which represented almost 29 per cent of sales last year, more than triple the penetration of only four years ago.
“With mask-wearing, lipsticks remain challenged, but mascaras and eye shadows have been exploding and fragrances have rebounded in a very spectacular way,” he said. “People still want to indulge.”
L’Oréal did not give detailed financial projections for the coming year but said it was “confident in our ability to outperform the market . . . and achieve another year of growth in both sales and profits”.
Its primary growth engine has been China, its second-largest market in term of sales after the US, where L’Oréal brands have been adopted by the growing middle classes. While growth rates there will eventually slow after rising 50 per cent in the past two years, Hieronimus said there was still much room to run.
“There is still huge potential since the spend per person is six times lower in China than in the US,” he said. “Demography is also in our favour since between now and 2030, there will be 320mn people more in the middle classes in China,” he said.
Before the global stock market sell-off began this year, L’Oréal shares were was trading at historic highs of about €430 but have since fallen to €371 per share. L’Oréal was one of the top-performing stocks in the European consumer sector last year, rising 33 per cent compared to an 8 per cent rise for the MSCI Europe Consumer Staples index.