Investing.com -- L'Oreal reported weaker-than-anticipated third-quarter sales growth as the beauty products giant's Chinese business faced ongoing challenges, sending Paris-listed shares in the group lower on Wednesday.
Regionally, L'Oreal's North Asia sales sank by 6.5% due largely to softness in its key Chinese market, where the company said consumer demand was "low." The comments suggest uncertainty surrounding China's recently sputtering economy is leading many shoppers to rein in spending on pricier beauty items.
"The situation in the Chinese ecosystem has become even more challenging, but we believe in the future of this market and hope that the governmental stimulus will help improve consumer confidence," CEO Nicolas Hieronimus said.
Growth of 1.4% at its consumer products division, a key driver of income, missed estimates as well. Meanwhile, analysts flagged a major downside surprise at L'Oreal's skin-care unit, which expanded by 0.8% on a like-for-like basis to 1.6 billion euros -- far below expectations for a rise of 11.2%. Analysts at Bernstein noted that, even after adjusting for a one-off insurance benefit in the prior-year quarter, the segment's growth of 4.7% still disappointed projections.
"[G]iven that the insurance benefit was flagged in the year ago quarter, we expect that it should have been in [the] numbers," the Bernstein analysts said in a note to clients.
Executives at L'Oreal said the dermatological beauty segment's slower expansion was linked in part to a reduction in retailers' inventories, a sluggish suncare season and a lack of innovations in mass make-up.
Total like-for-like sales for the quarter came in at 10.28 billion euros, a 3.4% increase compared to the year-ago period. Consensus estimates had called for an uptick of 5.9%.
Despite economic uncertainties and geopolitical risks, Hieronimus expressed confidence in L'Oreal's ability to "achieve another year of growth in sales and operating profit," adding that it is preparing plans to stimulate the beauty unit in 2025.
Following the earnings release, shares of U.S. beauty stocks declined. Ulta Beauty (NASDAQ:ULTA) is down over 1.1%, while e.l.f. Beauty (NYSE:ELF) fell 5.2% and Coty (NYSE:COTY) dropped 1.5%.
(Sam Boughedda contributed reporting.)