Investing.com -- Shares of L’Oréal (EPA:OREP) traded lower on Friday following its fourth-quarter earnings report, which showed a slowdown in organic sales growth, falling short of market expectations.
The cosmetics giant reported like-for-like (LFL) sales growth of 2.5% for the quarter, below the consensus estimate of 3.9%.
The weaker-than-expected performance was driven primarily by a slowdown in L’Oréal Luxe, the company’s premium beauty division, which posted just 1% LFL growth in the quarter, compared to a 9-month average of 3.4%.
The underperformance in the luxury segment was particularly pronounced in North Asia, where operating conditions remain challenging.
While L’Oréal continued to outpace competitors in the region, it was not enough to offset the broader weakness in the market.
North America also showed signs of slowing, with fourth-quarter LFL growth at 1.4%, down from a 6.9% pace over the first nine months of the year.
“By region, North America was the biggest miss, which we believe partly reflects normalising momentum of CeraVe. In North Asia, Q4 top-line growth was a low-single-digit decline, amidst a negative market in China and a challenging backdrop in Travel Retail,consistent with what we heard from its US peers,” said analysts at RBC Capital Markets in a note.
Mass-market cosmetics in the U.S. struggled, although strength in fragrances helped L’Oréal secure its position as the leading luxury beauty player in the country.
Despite the revenue miss, L’Oréal managed to maintain its EBIT margin at 20%, in line with expectations, demonstrating what Morgan Stanley (NYSE:MS) analysts described as "considerable discretion and control over its cost base."
The company benefited from a 30-basis-point improvement in gross margin and lower advertising and promotional expenses, partially offset by an increase in selling, general, and administrative costs.
“We struggle with valuation, however L’Oréal has maintained volume growth despite significant price increases and a sluggish China,” RBC added.
Despite not providing specific financial guidance for 2025, L’Oréal remains confident it will outperform the global beauty market.
The company expects growth to pick up gradually over the year, supported by its "beauty stimulus plan," which aligns with consensus expectations for a second-half acceleration.