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L’Oreal Sales Hurt by Deepening Demand Slowdown in China

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A L'Oreal store on Nanjing Road in Shanghai. Photographer: Wang Gang/VCG/Getty Images (Wang Gang/VCG/Photographer: Wang Gang/VCG/Gett)

(Bloomberg) -- L’Oreal SA posted disappointing sales last quarter as the beauty company suffers from worsening consumer demand in China.

Like-for-like sales in North Asia, which includes China, fell 6.5% in the third quarter, L’Oreal said in a statement Tuesday. Analysts surveyed by Bloomberg had expected a gain. The decline marks the fifth straight quarter of falling sales in the region. 

“In mainland China, the beauty market — already negative in the second quarter — continued to deteriorate, impacted by low consumer confidence,” L’Oreal said.

L’Oreal’s shares fell as much as 3.4% in early trading Wednesday. The company’s stock is down about 20% since the start of year. The weaker-than-expected results dragged down shares of rival Estee Lauder Cos. on Tuesday in New York.

Shoppers in China have curbed spending on makeup and skincare amid worries over slowing economic growth and a property market crisis — concerns that prompted the Chinese government to unveil a package of measures last month to revive the economy. Hainan, a duty free destination for Chinese consumers, in particular remained under pressure, L’Oreal said.

In a call with analysts, Chief Executive Officer Nicolas Hieronimus said he hopes the government stimulus will help boost local demand.

L’Oreal’s dermatological beauty division also grew well below estimates in the period. Hieronimus blamed the bad weather which hurt demand for suncare products in general as well as a lack of product launches at its CeraVe label.

“A few consumers left us,” notably Gen Zs in the US, Hieronimus said. “It’s up to us to recruit them,” by innovating more, he added.

The figures follow weak results in recent days from Coty Inc., a rival beauty company, and French luxury group LVMH. Kering SA, the owner of Gucci, will report sales on Wednesday.

Overall, sales at L’Oreal rose 3.4% in the quarter, missing estimates. The global beauty market is expected to grow between 4% and 5% next year, Hieronimus predicted in the call.

Sales are “rapidly cooling” and were well below expectations during the period, said Molly Wylenzek, an analyst at Jefferies. She said the big surprise was the lower growth in the dermatological beauty division. 

--With assistance from Kit Rees.

(Updates with share moves, adds analyst comment from fourth paragraph.)

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