PARIS — The sweetness market is predicted to proceed full steam ahead after a powerful first half of 2023, when it registered double-digit growth, despite inflationary pressures.

That was the outlook shared by Nicolas Hieronimus, L’Oréal chief executive officer, while addressing financial analysts and journalists Friday morning, a day after the corporate released its second-quarter and half-year results.

Through the discussion, he drilled down on developments in China — where there’s been a slowdown in Hainan Island’s duty-free trade, offline and online evolutions, in addition to financial milestones hit by the group.

As previously reported, within the six months ended June 30 company net profits grew 4.3 percent to three.36 billion euros on sales of 20.57 billion euros, up 12 percent in reported terms and 13.3 percent like-for-like. That marked the primary time group sales exceeded 20 billion euros in a half-yearly period.

Operating margin got here in at 20.7 percent, a rise of 30 basis points, setting one other company record, while earnings per share excluding non-recurrent items gained 11.2 percent to six.73 euros.

Through the period, skincare generated 41 percent of overall L’Oréal sales, at 8.5 billion euros, up 14.6 percent on-year. Makeup was the subsequent largest category, comprising 20 percent of the full and notching an 11.1 percent gain. Hair care made up 15.8 percent of sales, fragrance, 11 percent, and hair color, 8 percent. Those categories’ sales grew 15.8 percent, 21.8 percent and seven.2 percent, respectively.

“In an environment still marked by considerable inflationary pressures around the globe, our growth was driven by a powerful contribution from volume, up 4.9 percent, and value, up 8.5 percent,” Hieronimus said. “We estimate that the sweetness market grew by near 10 percent in the primary half, so we outperformed again, which is clearly unbelievable news.

“But what makes me especially proud is that this comes after not one, but two years of exceptionally strong share gains,” he continued.

Hieronimus said each retail channels — offline and online — were dynamic. He noted brick-and-mortar staged a powerful comeback. In that channel, L’Oréal sales grew 13.8 percent, versus the market’s sales that increased about 9 percent. L’Oréal’s e-commerce sales were up 12.1 percent against the market’s approximate 11 percent rise.

Hieronimus underscored the group’s balanced geographical footprint by revealing the top-five growth contributors by country were the U.S.; China; the Germany, Austria and Switzerland cluster; France, and Mexico.

“[They] represent each one in all our regions,” he said.

Within the half, sales in North Asia were up 3.9 percent on a comparable basis, after an acceleration within the second quarter, after they rose 5.9 percent versus plus-1.9 percent in the primary quarter.

Herionimus described the second-half performance there as having many moving parts. “Most of them [are] linked to what we call the Chinese consumption ecosystem, which incorporates notably mainland China, Hainan and Hong Kong — three markets between which consumption is becoming increasingly fluid,” he said.

“In mainland China, we’re seeing clear signs that consumption is recovering,” he said. “Consumer confidence is improving, restaurants are full, local travel is resuming. The recovery has been a bit slower than expected, but let’s be honest — three years of COVID-19 will take a little bit of time to be fully digested.

“Appetite for beauty remained strong — each offline and online,” Hieronimus continued. “Within the second quarter, beauty growth recovered to plus-6.5 percent.”

That’s against negative growth in the primary quarter.  

“And the way did we do? Our growth accelerated strongly, from broadly flat in the primary quarter to mid-teens within the second quarter,” the manager said, explaining L’Oréal innovations resonated well, the group introduced brands akin to Valentino, Prada and Takami, and entered lower-tier cities.

“We significantly outperformed the market and continued to realize share,” he said, adding that further cemented L’Oréal’s clear leadership position.

“We had a really successful 618,” said Hieronimus, referring to the important thing shopping festival in China. “Lancôme and L’Oréal Paris were the number-one and -two brands, and we had one other six brands in the highest 20. I need to focus on that our growth outside 618 was equally strong, signaling that the market is regularly getting back to normal.

“In Hainan, nonetheless, there’s been a transparent deterioration between the primary and the second quarter,” he said, in regards to the Chinese island that became a duty-free shopping having throughout the pandemic. “In mid-May, the authorities began to exercise much tighter control over the Daigou trade to preserve what they call ‘Hainan’s golden brands.’”

Daigou is an off-the-cuff cross-border market trade involving people buying products abroad to then resell them in China at the next price.

“Travel-retail operators have consequently refocused on the person traveler,” Hieronimus said. “This has had a severe impact on industry-wide sellouts. We’re obviously not resistant to this. We estimate that if the present policy stays the identical, it could lead on to a few of months of inventory reduction, keeping in mind that our absolute priority is the protection of our brands’ equity inside the Chinese ecosystem.

“To place our exposure into context, Hianan represents lower than 3 percent of our business — the full Chinese ecosystem, around 23 percent,” he said. “So mainland China has all the time been our focus, and we consider that the brand new paradigm in Hainan must have a positive impact on sellouts within the domestic market. This plays in our favor, given how strong our market share is in mainland China.”

On Douyin recently, there’s already been noted a partial transfer of purchases to the domestic Chinese market.

“All in all, our first-half sell-through within the Chinese ecosystem amounted to plus-10 percent,” Hieronimus said. That was well ahead of a market that had a 2.6 percent increase.

He said in the primary half, L’Oréal growth engines fired on all cylinders and that its virtual circle was in full swing.

“In fact, we are able to’t deny that we face a number of headwinds for the second half,” he said.

Currency exchanges are expected to be less favorable, there’s the Hainan effect and the proven fact that price is to make a smaller contribution to the full value growth.

“Despite that, we’re very confident in our ability to keep up excellent momentum within the second half,” Hieronimus said.

There are five fundamental reasons for this. First, L’Oréal believes consumer demand for beauty will remain robust. Hieronimus discussed the strength of markets in the primary half.

“And as we’re entering the second half, we don’t see any sign of downtrading within the western world,” he said. “Emerging regions remain equally dynamic.”

Consumer interest is high, in accordance with online search queries. Within the half, Google searches for beauty topics rose 14 percent — with those for fragrance up 26 percent — and wonder was the number-one topic on TikTok.

Second, L’Oréal’s 36 international brands have strong innovation within the pipeline for the second half.

“They may all include strong valorization,” Hieronimus said. “Third, we proceed to strengthen our digital leadership, which has all the time contributed to our outperformance.”

He said L’Oréal is the worldwide number-one in beauty share of influence, with 26.4 percent, up 5 points versus 2022. The group is, as well, the primary mover on TikTok in China and the western world.

The fourth reason for the corporate’s confidence is that the group stays true to its research-and-innovation roots, and the fifth cause is L’Oréal’s engaged teams, in accordance with Hieronimus.

He said company’s acquisition of Australian beauty brand Aesop is predicted to be accomplished within the second half of this 12 months, and that the first-time consolidation must have an estimated dilutive impact of around 25 basis points on the group’s operating margin on a 12-month running basis.

“Despite the remaining uncertainties of the economic landscape, we’re confident that we are going to deliver one other excellent performance within the second half,” Hieronimus said.

“We glance beyond 2023 with great conviction. We operate in an incredibly dynamic market. We’ve got created for ourselves an unrivaled well-balanced footprint by category, channel or region,” he said. “It is that this balance that has allowed us to weather turbulences in our industry persistently over. Our virtuous P&L will proceed to fuel our growth, while helping us to enhance our margins.”