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Wide-Moat L’Oréal Continues to Outgrow the Beauty Market, but Shares Are Priced for Perfection

Analyst Note

| Rebecca Scheuneman, CFA |

In its third quarter, L’Oreal’s like-for-like sales grew 13.1%, or 14.9% above the third quarter of 2019, with all divisions up over the two-year period. We were impressed with the 13.2% like-for-like growth in North Asia, given the resurgence of COVID-19 cases that led to another round of store closures and travel restrictions in China, Japan, and South Korea. Another highlight was L’Oreal’s ongoing outperformance across its categories, with growth for the company and the global category at 20% and 9%, respectively, for skincare, 15% and 9% for makeup, 12% and 7% for haircare, and 40% and 19% for fragrance. We attribute this outperformance to L’Oreal’s strong brand equities (which underpins its wide moat), the firm’s significant presence online (27% of sales), which protects it from store closures, and L’Oreal’s decision to maintain a high level of brand investments while many of its competitors pulled back during the pandemic.

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Company Profile

Business Description

L’Oréal, founded in 1909 by Eugene Schueller when he developed the first harmless hair colorant, is the world’s largest beauty company. It participates primarily in skincare (39% of 2020 revenue), makeup (21%), haircare (26%), and fragrance (9%). L’Oréal is a global firm, with 27% of its revenue sourced from Western Europe, 25% from North America, and 48% from emerging markets (35% Asia-Pacific, 5% Latin America, 6% Eastern Europe, and 2% Africa/Middle East). The firm sells its products in many channels, including mass retail, drugstores/pharmacies, department stores/perfumeries, hair salons, medi-spas, branded freestanding stores, travel retail, and e-commerce. The firm’s top selling brands are Lancôme, Yves Saint Laurent, Maybelline, Kiehl’s, L’Oréal Paris, Garnier, and Armani.

41, rue Martre, Clichy Cedex
Paris, 92117, France
T +33 147567000
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type
Employees 85,392