China has been the go-to excuse for disappointing result after disappointing result in the global luxury sector for nigh on two years now and L’Oreal’s has not bucked the trend.
Sales in the first nine months for France’s third-largest company came to €32.4 billion, which was 6% higher on a yearly basis but considerably below analysts’ expectations.
While L’Oreal’s chief executive Nicholas Hieronium cited “robust” European and North American trading conditions, he warned that “the situation in the Chinese ecosystem has become even more challenging”.
Worse still, the downward sales trend escalated as the quarters came and went.
Sales in ‘North Asia’, where China sales are captured, declined by 6.5% in the third quarter on a like-for-like basis or significantly worse than the flat 3% average sales decline across the broader nine-month period.
“In mainland China, the beauty market – already negative in the second quarter – continued to deteriorate, impacted by low consumer confidence,” said Hieronium.
Morgan Stanley (NYSE:MS) called these results “clearly disappointing”, even though the China slump should be seen as “old news” by now.
Old news or not, markets continue to punish L’Oreal’s inability to stimulate Chinese demand.
Shares fell by 3.8% today, bringing year-to-date losses above 20%. The stock is now approaching two-year lows.
It’s far from a L’Oreal-specific problem.
In the UK, Burberry Group PLC (LSE:BRBY) was tossed out of the FTSE 100 blue-chip index after its valuation collapsed in half this year.
L’Oreal’s luxury confrères on the French bourse have struggled. LVMH is down 15% year to date, Dior is down 16% and Gucci-owner Kering a brutal 40%.
Declining Chinese demand has been a running theme across the board.