L'Oreal Q1 sales update

L'Oreal, the giant cosmetics and beauty care firm delivered a sales update a number of weeks back - Q1 2017 sales. Sales grew 7.5 percent for Q1 (relative to this time last year), to top 7 billion Euros. This is a beast, a big machine that operates across the globe. Makeup and beauty care is both a luxury and a necessity. It is an industry that fascinates me, beauty and the application of the associated products has been around for thousands of years. The application of cosmetics is quite simply to change or alter the appearance of the body, most noticeably the face. Way back, fragrances were used to mask the fact that people bathed less often.

All that said, cosmetics, hair care and fragrances are now available to the masses, the middle classes can now (thanks to technological advances and lower manufacturing costs in bulk) enjoy the same products available to nobility and the upper classes of yesteryear. Most of the majors of today were founded just before the first world war, there are always newer entrants, consumers will go with what they trust. Of course there are advancements in the products, science is always pushing the boundaries.

These companies, including L'Oreal, have massive marketing budgets, telling you how awesome their product is. How it slows the signs of ageing, using xyz scientific formulations and the like. The advent of the front facing camera and the "selfie" means looking good has never been so important. Most especially if being beautiful attracts tons of follows and potential revenue in the form of advertising. So ..... we know the story, we know the investment thesis. Emerging markets, scientific progression and stickiness of their customers (who wants to look less glamorous?) means continued revenue growth in emerging and developed markets.

Of all the divisions, only professional products was a drag, no thanks to their home market France which has been tricky at best. I wonder if the recent political "good outcome" will lead to a more positive consumer? Emerging markets and particularly ours (the Middle East and Africa are lumped together) have been poor. Herewith a breakdown of the product sales and the regional sales, in order to give you a better idea of what the breakdown is:



These quarterly sales were ahead of expectations, the stock price has steadily increased to close at an all time high in recent days (in Euros and Dollars). What to do now? I think that for all of time now and in the future that their products will be relevant, they will also innovate and attract new customers. To think that only half of the global population is a potential user of their products also means that newer societal norms could see their product range grow for men. We continue to recommend holding this business.