Loreal Q3 2024 $OR (-0,29 %)

Financial performance

L'Oréal recorded sales growth of 6.0% in the first nine months of 2024, amounting to €32.40 billion. This growth was consistent both on an adjusted and underlying basis, although the company faced several external challenges, particularly in North Asia. L'Oréal continues to outperform the global beauty market, driven by its innovation and resource redeployment strategies.

Income statement

Sales growth in the different divisions and regions indicates a positive impact on revenues. The Consumer Products Division and the Dermatological Beauty Division showed significant growth, with the latter increasing by 11.3% on an adjusted basis.

Cash flow analysis

The expected impact of the French tax changes in 2024 and 2025 will affect cash flow, with an estimated additional tax burden of EUR 250 million.

Key figures and profitability

The company values margin protection and a steady improvement in the margin, despite increased spending on advertising and promotion (A&P).

Segment analysis

Professional Products: Grew by 5.8% adjusted, driven by innovations in hair care and hair color.
Consumer Products: Recorded an increase of 6.4% adjusted, with strong performance in hair care and makeup.
Luxe: Grew 3.4% adjusted, with strong performance in fragrance.
Dermatological Beauty: Grew 11.3% adjusted, outperforming the market, despite a slowdown in the US.

Competitive analysis

L'Oréal continues to gain market share in key regions and categories, particularly in luxury and dermatological beauty. The company is leveraging its broad brand portfolio and innovation capabilities to outperform competitors.

Forecasts and management commentary

Management is confident that sales and operating profit will increase for 2024 and is planning a beauty stimulus plan for 2025 to drive further growth. The company expects the global beauty market to grow back to pre-COVID-19 levels by 2025.

Risks and opportunities

Risks: The challenging market conditions in North Asia, particularly in China, pose a risk to growth. In addition, the impact of the French tax changes could affect profitability.
Opportunities: The acquisition of a stake in Galderma and the focus on innovation in dermatological beauty offer significant growth opportunities.

Summary and strategic implications

L'Oréal's strategic focus on innovation, market share gains and resource redeployment has enabled the company to maintain robust growth despite external challenges. Investments in dermatological beauty and strategic acquisitions position L'Oréal well for future growth. However, the company must overcome challenges in the Chinese market and manage the impact of tax changes to maintain its performance.

Overall, L'Oréal's strategic initiatives and market positioning point to strong potential for continued growth and market leadership in the beauty industry. My entry price would therefore only be around 340 euros, although I already have some investment via nestle.

Positive statements

Sales growth: L'Oréal posted solid sales growth of 6.0% in the first nine months of 2024, reaching 32.40 billion euros, showing resilience despite external challenges.
Market superiority: The company continues to outperform the global beauty market, driven by its innovation and the agility of its teams.
Segment success: The dermatological beauty division grew by 11.3% on an adjusted basis, significantly outperforming the market.
Strategic acquisitions: The acquisition of a 10% stake in Galderma positions L'Oréal to expand its dermatology solutions and leverage synergies in skin biology.
Innovation and resource allocation: L'Oréal's focus on innovation and strategic reallocation of resources has enabled the company to maintain robust growth and market share gains.

Negative statements

Challenges in North Asia: Sales in North Asia declined by -3.0% adjusted as the Chinese market continues to deteriorate due to low consumer confidence.
Impact of French tax changes: The expected impact of French tax changes in 2024 and 2025 could affect cash flow, with an estimated additional tax burden of €250 million.
Slowdown in the US market: The US market has slowed down, affecting the dermatological beauty division in particular, which saw a noticeable decline in growth.
Pressure on inventories: American retailers have become more cautious about their stock levels, particularly in mass and drugstore markets, which could have a negative impact on sales figures.
Delayed product launches: The recovery of the makeup category has been gradual, with new product launches delayed, which may have delayed potential growth.

Soprano@Soprano

8Mo

"My starting price would therefore only be around 340 euros, although I have already invested in a part via nestle."

I don't understand about Nestle. But we are only 3% above your desired entry price. So why don't you buy the first tranche? Should entering 3% cheaper really make a difference in the long run?

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ThemenmitKopf@topicswithhead

@Soprano Nestlé holds 20% of L'Oréal, and I think you should stick roughly to the set limit of ±1%. In the end, it may be true that you don't lose much return, but you still lose something. I think it's too easy to say that it doesn't matter in the end. That would be tempting yourself to ignore your limit and overpay just because you really want the stock. It's not classic FOMO, but if you do it regularly, the opportunity cost is similarly high. Just because it's not directly visible in the end doesn't mean you haven't overpaid in real terms.
That's easy to say if you actively follow several stocks. If you only have one, then maybe +-3% would be okay.

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@topicswithhead Thanks for explaining your thought. However, I would argue that we don't know the exact fair value of a share. Just because I say (or calculate) that a share is worth 100 does not necessarily mean that it is worth 100. There is an inaccuracy of at least 5%. It could be that I buy at 102 and think I have overpaid, whereas the value would already have been 108 and I have actually received something on top.

In any case, I still think it's really great that you're sticking to this principle.

You should also bear in mind that you may never reach your target price. Then you might miss out on even more returns. An example for me is Crowdstrike. I told myself in the summer that the share was only worth buying from €180. But it never actually went below €197 and is now at €280. I'm personally not at all annoyed about this because the risk was too great with a >10% deviation.

But if we had already been at €184 and I still hadn't done anything, I would have been really annoyed afterwards that I left €100 lying around for fear of being €4 too expensive.

@Soprano of course you can't calculate the real fair value, especially because you always work with historical data and rely on forecasts that are not foreseeable now. nevertheless, you have to assign a value to the share. I have already lost great shares with it and your point of "maybe the share will never get to the point" hits deep wounds but I mean if you don't stick to your own work it is worth very little. For me it's just a way to reduce FOMO and I mean if you think the 3% doesn't matter much you can personally just move the fair value.

@topicswithhead I don't want to say that this is not the case. I have also bought shares higher but I don't see myself having to do so with L'Oréal. And then there are the taxes

Ultimately, you just have to know yourself. FOMO has never been a problem for me. Rather that I was too cautious when I first entered the market but bought unlimited amounts of garbage stocks because I can't admit to having been completely wrong.

You could also accuse me of saying the exact opposite with ASML and warning against an overly expensive entry and now with Loreal I'm saying that a few euros don't matter.

I probably just enjoy the scientific-philosophical discussions with you too much.