Earnings call transcript: L’Oreal Q1 2025 sees steady growth amid challenges

L’Oreal reported a Q1 2025 organic top-line growth of 3.5%, driven by strong performances in Europe and emerging markets, despite challenges in the U.S. and a stabilizing market in China. The company launched its Beauty Stimulus plan, showcasing new products, and continued its IT transformation efforts. The global beauty market is projected to grow between 4% and 4.5%, with L’Oreal anticipating stronger performance in the second half of the year.

Key Takeaways

• L’Oreal achieved 3.5% organic growth in Q1 2025.
• Europe and emerging markets were key growth drivers.
• The U.S. market faced challenges, while China showed stabilization.
• New product launches under the Beauty Stimulus plan are underway.
• The company is focusing on IT transformation to boost efficiency.

Company Performance

L’Oreal’s performance in Q1 2025 was marked by a 3.5% increase in organic top-line growth, aided by a €100 million boost from IT-related inventory building. Europe emerged as the best contributor, while emerging markets showed dynamic growth. However, the U.S. market presented challenges, and China’s growth was nearly flat, indicating stabilization. The company’s strategic focus on innovation and market expansion remains evident.

Financial Highlights

• Organic top-line growth: 3.5%
• Notable product launches: Gloss Absolut, PTX, Make Me Blush, L’Hercept Growth Booster
• Strong performance in fragrances and hair care

Outlook & Guidance

L’Oreal expects positive growth in China and anticipates market acceleration in the second half of the year. The company maintains its projection of a 4% to 4.5% growth in the global beauty market. It continues to monitor the potential impact of tariffs and is committed to ongoing innovation and market expansion.

Executive Commentary

Nicolas Irenumus, CEO, stated, "We delivered organic top line growth of plus 3.5% in line with our projections," highlighting the company’s alignment with its growth targets. He further emphasized the promising start of the Beauty Stimulus plan and the strategic reorganization efforts aimed at leveraging L’Oreal’s scale.

Risks and Challenges

• U.S. market challenges: Continued difficulties could impact overall growth.
• Tariff implications: Potential tariffs may affect profitability.
• IT transformation: Successful implementation is crucial for efficiency gains.
• Market saturation: Competition in key markets could limit growth.
• Macroeconomic pressures: Global economic conditions may pose risks.

Q&A

During the earnings call, analysts inquired about the U.S. market challenges, the impact of the IT transformation, potential tariff implications, and the company’s performance in China and Brazil. These discussions underscored the strategic focus areas for L’Oreal moving forward.

Full transcript - L’Oreal SA (OR) Q1 2025:

Alessia, Conference Operator: Welcome to the conference call regarding L’Oreal sales at 03/31/2025. The conference is about to begin. I now hand over to Eva Quiroga. Ms. Quiroga, please go ahead.

Eva Quiroga, Global Head of Investor Relations, L’Oreal: Thank you very much, Alessia, and good afternoon to all. Thank you for joining us for the presentation of our first quarter twenty twenty five sales. I’m here with our CEO, Nicolas Irenumus.

Nicolas Irenumus, CEO, L’Oreal: Good afternoon.

Eva Quiroga, Global Head of Investor Relations, L’Oreal: Our CFO, Christophe Babul.

Christophe Babul, CFO, L’Oreal: Hello, good afternoon.

Eva Quiroga, Global Head of Investor Relations, L’Oreal: And our Global Head of Corporate Finance and Financial Communications, Laurent Schmidt.

Christophe Babul, CFO, L’Oreal: Hello, Good afternoon.

Eva Quiroga, Global Head of Investor Relations, L’Oreal: We know that for many, this call is the last thing that stands between you and the long weekend. So Nicolas will make just a few brief opening remarks before we go to Q and A. And with that, over to you Nicolas.

Nicolas Irenumus, CEO, L’Oreal: Yes. Good afternoon, everyone. So a few comments on this first quarter. As you know, globally it’s been a real roller coaster of economic and geopolitical challenges with daily announcements. And in that context, I’m very pleased that we delivered organic top line growth of plus 3.5% in line with our projections.

Growth was boosted by €100,000,000 which is the net impact of the IT related inventory building between 2024 and 2025. As always, there were some good surprises and some not so good ones. The U. S. Were more challenging than anticipated and China was slightly less bad than expected.

Europe was once again our single best growth contributor. Emerging markets remain dynamic. Last year, we told you that we would step up our innovations in 2025. And I’m happy to say that our Beauty Stimulus plan is off to a very promising start with strong contributions from our divisions and brands, including a few products like Gloss Absolut from Kerastase, PTX from SkinCeuticals, Make Me Blush from Yves Saint Laurent, as well as the very aptly named L’Hercept Growth Booster by L’Oreal Paris. Its impact will only continue to increase as we extend our innovations into new markets and continue to launch more new products.

Fragrances and hair care remained our two best performing categories and our makeup stimulus plan is starting to bear fruits in a market that’s unfortunately subdued. Besides our obsession with growth, one of our key priorities in the current environment is to manage our P and L in order to mitigate the impact of tariff hikes. And it goes without saying that our truly global manufacturing footprint and our very healthy gross margin positions us relatively well versus our peers. And we will of course continue to put the right fuel behind our 37 global brands to further reinforce our global leadership. This makes me confident that we will continue to outperform the global beauty markets and achieve another year of growth in sales and profits.

And with that, let’s go to the Q and A.

Alessia, Conference Operator: Thank Next question is from Guillaume Delmas, UBS. Please go ahead.

Guillaume Delmas, Analyst, UBS: Thank you very much and good evening all. If I may, some housekeeping first. Christophe, can you maybe remind us what kind of tax rate you expect for this year? And also if you could give us the Q1 like for like by product category. So that would be the housekeeping.

And then my two questions. So first, on the outlook for the beauty industry in 2025. I mean, at the time of the full year results in early February, Nicolas, you were talking about 4% to 4.5% market growth with some gradual acceleration through the course of the year. Is it still the case? Or given the increased geopolitical volatility, has it become much more difficult to forecast the development of the beauty industry this year and as a result, probably better to be cautious?

And then my second question, it’s on your restructuring effort this year. I mean, we anticipate a more pronounced, a more significant focus on restructuring relative to the past few years? And how should we view this? Is it defensive, so very much an attempt at protecting margins? Or is it more L’Oreal going on the offense as well and trying to free up resources to support this beauty stimulus?

Thank you very much.

Christophe Babul, CFO, L’Oreal: So again, I’ll go first maybe with the first question. I think it was related to the corporate income tax. So what you can expect is, of course, it will depend on the mix of our sales by region, basically more or less the same corporate income tax percentage of last year, except that this year, as you know, we expect this exceptional corporate income tax to be of around EUR250 million. So

Guillaume Delmas, Analyst, UBS: that

Christophe Babul, CFO, L’Oreal: will be the exceptional burden for this year.

Nicolas Irenumus, CEO, L’Oreal: So on the other questions, first on the categories. So as you’ve heard, our quarter has benefited from this extra EUR 100,000,000 from inventory building, so which I have not calculated by category. So I will give you the numbers by category, including this inventory building, which probably is a bit more skincare skewed because it was our China IT that was reset early April. But by category, we’re in high mid to high single digit on hair. We are low single digit on makeup and skincare.

And we are in mid teens on fragrance. So it’s clearly fragrance, as I said, fragrance and hair care, which are really driving the biggest part of our growth. And it’s, by the way, global. It’s across all markets. As far as the market itself, the growth of the market itself, I said indeed the 4% to 4.5%.

As I said in my opening statements, the market did not exactly start as we were hoping because the American market has been slower than expected. And even though China has been a bit better than expected, getting to flattish when it was mid single digit negative in Q4, The start of the year is not exactly what we hoped for. But as I said in the annual results conference, most of our hope for this four to four point five year lies on the second part of the year. And of course, it’s very hard today to predict what will be the impact of this international turmoil and tariff wars on consumption itself. But I would say that today, I see no strong results or no hard facts to change my prediction.

The only thing I would say is that and by the way, I had already said it from the get go that I see the market more on the lower end of that prediction than on the upper end. But we’ll see. We’ll see. It’s really too soon to tell. Mean, I guess that like me, you’re seeing changes every day.

But today, I see no real hard facts to change the prediction rather than just more on the low end. And on restructuring, there’s no real restructuring as you may hear in some other companies. Are at L’Oreal, we are constantly reorganizing, doing we have this big One L’Oreal project that relies on this IT transformation, where we share a number of resources between our countries or between our divisions with one clear objective, which is to combine the scale of the power of the scale of L’Oreal and sharing resources, IT backbone, methods, market analysis more than we ever did is a strong asset. And at the same time, we want to keep our agility, particularly in markets because in today’s world, agility is of the essence. So yes, it does free resources to be more active on in supporting our launches and to be more agile at market level.

But it’s not there’s no restructuring per se. We are just sharing more and more things at global level and leveraging more and more data to empower our businesses globally.

Guillaume Delmas, Analyst, UBS: Thank you very much.

Nicolas Irenumus, CEO, L’Oreal: You’re welcome.

Alessia, Conference Operator: Next question is from Charles Scotty, Kepler Cheuvreux. Please go ahead.

Charles Scotty, Analyst, Kepler Cheuvreux: Good evening. Thank you very much for taking my questions. Have three. First one on The U. S.

Market. We heard that several retailers are blaming Amazon Premium Beauty to expand their destocking and weaker outlook for 2025. You mentioned channel expansion in your press release. How are you positioned on this accelerated online shift in The U. S?

And do you think you can eventually disrupt your business with your brick and mortar partner? The second question, in The U. S, I think a bit less than 50% of your sales are made locally and over 30% from Europe. Is that correct? And by how much you need to raise prices in The U.

S. To offset the tariff? And will you have eventually some room to grow your local productions if tariffs stay in place for longer? And finally, I’m just curious to hear the secret sauce behind your mid teens growth for Fragrances because we have seen some of your competitors releasing flattish, if not slightly negative organic sales growth in Q1. So I guess it’s mostly market share gains, but I’m keen to hear more granularity on your performance on this category.

Thank you.

Nicolas Irenumus, CEO, L’Oreal: Okay. So several questions. First of all, it’s true that overall, I mean, it’s not a U. S. Thing.

Overall, in the world we live in today, online is growing faster than offline. It’s true everywhere. So it’s true in Europe, it’s true in India, it’s true in China, and it’s true clearly in America and even Latin America. And our strength in digital is a clear asset for us. It’s a way to penetrate markets where we were struggling to penetrate like India before.

And in The U. S, which is a very big market, it’s a way to reach our consumers. And also sometimes to clean the market because if I take a great I think a good example is because you’re referring to the potential impact of being online on our brick and mortar partners. I would take one very straightforward example, which is the professional division, hairdressers, which are and still are selling our Kerastase shampoos, but we have opened Redken or Matrix to Amazon Kerastase to Sephora and Sephora.com. And in all instances, our our SAML partners, we’re grateful for us to do so because being on these channels officially allowed us to clean the gray market because you have to be totally clear that most of the brands are present online and on Amazon.

The difference was being officially there and or unofficially is that you have better control of the image, of the price, and our consumers expected us to be there. And today, if take a brand like Kerastase, it’s growing very strongly online in selective and offline in salons. So it is of course something that has to be managed carefully. It means that if I take the luxury brands that are on Amazon in The U. S.

First, not all of our brands are there. We just opened Kiehl’s last year. We had Lancome, a few fragrances. But it’s also a model where it’s I don’t want to be too technical, but it’s a 3P model, which means that we are operating the sites. We are controlling the aesthetics and the price at which we sell.

So we are contributing to Amazon having the most complete selection, but without being creating unwanted competition with our offline retailers. So overall, it’s as always, it’s a subtle balance between making our brands putting our brands in the hands of consumers, but at the same time, protecting the image and the growth of our historical partners. And we have no complaint of any of them. So I think it’s a system that works as long as it’s managed professionally and carefully. I’ll stick to fragrance and then I’ll go to the tariff questions on production.

On fragrances, you always have to be humble with fragrances because I think of all the categories it’s the one where it’s as much art and intuition as it is science and consumer research. And I must say that I’m blessed with the team that does a phenomenal work at combining both. I think we have to be fair, we have great brands, brands that are hot, Prada, Yves Saint Laurent. Now we are not we haven’t started yet, but we are bound to launch our first Miu Miu fragrance. And there are several brands, Ralph Lauren has got exciting projects.

So it is I think we have great brands and the capacity of both our fragrance creators and marketing teams doing a great job on this. So I’m saying we have to be humble because it’s never guaranteed. And by the way, we still have areas of opportunities in the most premium part of the market, the collection and niche fragrances. But overall, I’m pretty pleased with what I see. And I have an extra advantage over you is that I know what we’re about to launch for fall, which is prior to the big holiday season on several of our brands.

And there are very exciting launches to come. And I hope they’ll have the same positive fate as the ones we have put on the market so far. Going back to the tariff thing, today, the numbers you mentioned are the assumption is right. The numbers you mentioned are correct, considering The U. S.

Indeed, it’s as a weight of turnover, it’s a bit shy of 50% that is manufactured in The US and 30% comes from Europe, rest comes from Mexico, Canada and a few other parts of the world. So first of all, most of our CPD brands, CeraVe are manufactured in North America. So what is exported is mostly luxury. And to answer your questions, we indeed, there are several ways to mitigate these tariffs impacts, which we hope not to be withheld. But if they are, there are several ways to be for this to be mitigated.

One is price increases because that it’s on categories that are in the luxury sector. You have a bit more pricing power. Of course, we had built some inventory prior to the because we couldn’t say that these tariffs were unannounced, even though the magnitude has been a bit higher than expected, but we had built inventory on several of our brands. So whatever is confirmed will mainly impact our second half in terms of margin impact. So we can take prices up.

We have built inventory. And yes, we can relocate some of our productions. But of course, we don’t want to make the good thing is that we have factories in every region of the world. But we don’t want to take any measures on something that might be temporary. So we are watching carefully what’s happening and trying to figure out what will be the end game.

And then according to what’s decided, we can take the relocation measures.

Charles Scotty, Analyst, Kepler Cheuvreux: Thank you very much. Very clear.

Nicolas Irenumus, CEO, L’Oreal: Thank you.

Alessia, Conference Operator: Next question is from Celine Panuti, JPMorgan. Please go ahead.

Nicolas Irenumus, CEO, L’Oreal: Hello, Celine. Hello. Hello?

Alessia, Conference Operator: Celine Panuti, your line is open.

Celine Panuti, Analyst, JPMorgan: Yes, Francois, sorry. I hope you can hear me now. I have two questions. Maybe staying on The U. S.

Could you say, I think you grew 0.5%, whether there was any destock within that or in fact some build as well benefit maybe some of your retailers loading some of the European luxury brands? And if you could help us as well understand the trends within the quarter in The U. S. And what I mean from a category perspective where you saw the most weakness versus your expectation, which Nicolas you mentioned at the beginning of the call. That’s my first question.

My second question is to try to understand as well the guidance. So you are when you said that progressively improvement in growth rate, what is the base that you expect for Q1? Should we look at the 1.5 or the 3.5? And on the market growth, which I believe was probably around 1% at the start of the year, and I understand maybe difficult to predict yet what second half would be. Could you help us understand maybe market growth in U.

S. And Europe where you say that both of them seems to have slowed? Thank you.

Nicolas Irenumus, CEO, L’Oreal: Okay. So in The U. S, there is no particular inventory building. The only thing that where we might have had a bit of first of all, there was no inventory reduction Aside from the comparative of last year’s IT sales, of course, there was no inventory reduction and no inventory building either. There was clearly one of the divisions where we had the biggest new product intensity was luxury.

So that’s probably the division where we invoiced a bit more than we sold through in The U. S. But overall, I think we are fine overall in terms of inventory. And in terms of softness of the market, where the market was in terms of compared to expectations, where the market was slower than expected, mostly in makeup. Makeup was whether in mass or luxury was really I don’t know if it was affected by the lack of morale right now or also because right now, as always in makeup, the trend is more in what they call the me, but better trend.

So there was a bit less makeup on and less colors, that’s always a cyclical thing. That makeup was the category that was the most below our expectations. Hair care was pretty steady. Fragrance indeed slowed a bit, but not us. So that’s the good news because we increased probably our market share gains in Fragrance.

And in skincare, as we’ve seen in prior quarters, the derm market slowed had slowed in The U. S. Even though depending on our brands, L’Arche Prozet continued to be good, SkinCeuticals bounced back and CeraVe remains right now challenged. Overall, as I said in my opening statement, we are more or less in line with our projections, slightly on the lower end of our prediction for the market. So nothing really changing in our projection for the future.

Our estimation of the market for Q1 is closer to plus two than plus one. So which is why, again, depending on what’s happening on second part of the year, where the comparatives are significantly lower, I still believe we can be not too far from that plus four growth rate for the market. And by regions, as I said, right now, Europe and Europe is still holding quite well overall, maybe France with the exception of France. Southern Europe continues to be pretty dynamic, Eastern Europe, too. So in the end, there’s not a lot of new things since last time we spoke.

The only thing I can say is that I went to both to China and to The U. S. Over the last couple of weeks. And I felt indeed an American market that was less dynamic than expected and in some categories like makeup and mass even negative. And on the other hand, it just come back from China, whether the market was overall flattish on Q1, which is not great, but compared to the mid to high single digit negative on the second half of the year shows an improvement.

And by the way, we did beat that market so overall. So yes, so we are of course, there’s no certainty looking ahead considering the context, but we are moving according to plan.

Celine Panuti, Analyst, JPMorgan: Can I just say on China, there was an article recently where your head of the country spoke about a 5% aim for China, L’Oreal, you concur?

Nicolas Irenumus, CEO, L’Oreal: Yes. I don’t confirm. I called him because there’s a as I just came, we had just had a meeting together. And I challenged my team. Said, guys, the President of China gave an objective for his own growth at plus 5%.

You have to give yourself ambitious objectives. So he probably came out of the meeting with me with a little bit of boost and he commented on that number. We never give such accurate number. But what is for sure is that I expect my team to have a positive growth in China this year. And that’s what they are expected to do.

We have new brands. We are opening in new cities. And again, products and divisions are doing great. We’re above market in Luxe. We’re very significantly growing in Derma and Professional.

And the one division that remains slightly below market in China is CPD. Even though L’Oreal Paris is doing a good job, but overall, there’s a stronger competition in mass, that’s where it’s a bit harder. So it was a bit my Chinese CEO was a bit euphoric. But overall, we have to be positive.

Celine Panuti, Analyst, JPMorgan: Thank you.

Alessia, Conference Operator: Next question is from Jeremy Fiaco, HSBC. Please go ahead.

Nicolas Irenumus, CEO, L’Oreal: Okay. Hi, good evening.

Jeremy Fiaco, Analyst, HSBC: Thanks for taking the question. So I’ve just got a couple more on The U. S. So the first one is, I know you’ve given us quite helpfully the detail on some of the kind of categories in The U. S.

But can you talk more generally about the consumer in The U. S? Were there any particular sort of income groups or demographics or just any things like that you could talk about as to what where the slowing was most pronounced within the period? And then the second one is on this whole question of tariffs. Now clearly, are going to be competitors who might actually rely more on imports or more on imports from China than you do.

So is there anything you’ve seen in terms of competitors having to raise their prices quite a lot in order to offset the tariffs or anything like that, that you might be anticipating that could actually give you some degree of kind of competitive advantage in the market when other people are forced to price up and you’re not?

Nicolas Irenumus, CEO, L’Oreal: So in terms of demographics or in terms of consumer behavior in The U. S, the only thing I can say, which I’ve read like you probably is that the latest numbers on consumer confidence in The U. S. Have gone down and they’re lower than in Europe right now. So we know that usually it affects spending on any category and in ours and maybe the growth on makeup or the lack of growth on makeup has been impacted by this.

Then there are things that I’ve heard other people say, but to be honest, I haven’t seen any hard facts on that. I’ve heard some people saying that the Latino consumer considering the entire immigration situation was a bit more shy in terms of its shopping habits and going to stores. But frankly, this is hearsay, so I can’t really endorse this fact. It’s just some things that people were saying. But it’s clear that the climate right now in The U.

S. Is a bit less positive than it was at least in people’s mindset than it was a couple of months ago. So we’ll see how things evolve. And if the morale of people follow the curves of the stock market in The U. S, you can clearly have a few highs and a few lows.

And going back to the tariff thing, we haven’t seen anything short term because obviously, I guess we’re not the only ones to have had some inventory. But what is true is that in the world of indie brands, very clearly, many of them have been relying a lot on China. If I take one of my favorite brands, which is NYX Professional Makeup, over the last couple of years, we’ve really worked at reducing the exposure of NYX to Chinese imported products. I think now it’s around 20% of which is not nothing, but it’s only 20%. And we know that some of our very direct competitors are closer to 80%.

So at some point, if tariffs and particularly the tariffs against China are confirmed stand, it will indeed benefit some of our brands makeup in particular. But it’s too soon to say, too soon to see anything anyway. Thanks very much.

Alessia, Conference Operator: Next question is from Olivier Nicolai, Goldman Sachs. Please go ahead.

Olivier Nicolai, Analyst, Goldman Sachs: Hi, good afternoon, Nicolas, Christophe, Laurent and Eva. I’ll stick to two questions. So just following up on The U. S, I think you were losing market share in makeup last year, particularly in H2, mostly around the Maybelline brand. It doesn’t seem to be the case from what we could read this afternoon.

Could you give us perhaps a bit more color on what you’ve done to reverse share losses? And if Maybelline is now back in line with the rest of the market? And secondly, on Brazil, that appears to be contributing very nicely to L’Oreal growth, mostly through hair care. How much upside do you see on Brazil? And what do you think you are in the journey there?

Thank you.

Nicolas Irenumus, CEO, L’Oreal: So on makeup in The U. S, we are indeed in CPD because that was we have done a better job on Luxe, but it was mostly through Saint Laurent. And I still think we still have to win share on luxury because some of our indie brands are not doing or ex indie brands are not doing as good as I’d want. On mass, it was clearly a loss of market share last year. And this year, we are winning share.

So it’s a bit everybody. NYX continues to be very strong. L’Oreal Paris is doing great on makeup in the wake of the Panorama mascara launch, which is already a year old but continues to thrive plus a few new products. We have a new mascara launch that’s called the Big Deal, Lash Paradise Big Deal. So I guess between L.

S. E. V, Growth Booster and Big Deal, maybe we are creating positive omens for our brands. Maybelline is in recovery mode. We have some of the new products we’ve launched, Editing, etcetera, are doing good.

But it’s I would say Maybelline is more on par with market and not really gaining share at this point. So it’s of all the makeup brands, it’s the one that still has some it’s also the biggest one. So it’s probably the one that’s most affected by the market difficulty right now, but it’s improving. So great on NYGS, great on L’Oreal Paris and getting better on Maybelline. And on Brazil, hair care is a fantastic success story.

I must say we have and it continues by the way. The interesting thing on Brazil right now is that we have, I would say, finally, because it’s been a long and winding road, we have a break in Garnier skincare. We’ve launched new products from Garnier, which are moisturizers with a very impressive breakthrough formula from our lab, which is a formula that’s both very moisturizing and super dry on the skin. It’s called it’s a Garnier, it’s a Toqueseco, it’s a dry touch moisturizer. And the thing seems to be really flying off the shelves and really loved by the young generations of Brazilians because precisely it’s the ideal cream for all those who hate moisturizers because it makes your skin greasy in the sun.

And that it’s they can come out of summer. That’s a good start. So I think we have good the only part of our catalog, which is not doing phenomenal today in Brazil is which was already very big is Dermatological Beauty, but as we have strong plans coming back in the second half. So overall, think CPD, to take your expression, CPD has a lot of headroom still to grow because we’ve only really made it hair right now. And I think we can do great in skin.

Guillaume Delmas, Analyst, UBS: Thank you very much.

Alessia, Conference Operator: Next question is from Sarah Simon, Morgan Stanley. Please go ahead.

Sarah Simon, Analyst, Morgan Stanley: Yes, thanks for taking my questions. First one was just around phasing. In terms of the benefits in North Asia, should we expect all of that to be reversed in the second quarter or will it spread across the year? And just back on what Celine had asked about, in terms of the progressive improvement, I’m assuming it’s fair to think that given you’ll have this headwind from the unwind of North Asia that it’s versus the underlying growth that we should expect improvement through the year? And then the second question was just on Walmart pushing more aggressively into beauty.

Is that significant for you? I mean, you benefit from that in Q1 or would you regard that as just part of the usual kind of retailer movement? Thanks.

Nicolas Irenumus, CEO, L’Oreal: Well, first of all, on the growth over the year, I think we see the acceleration really more a second half story than necessarily a quarter by quarter acceleration. And indeed, it has something to do with the North Asia comparatives. And also it’s the beginning of the slowdown of the value effect in our own numbers and in the market’s numbers. So we always faced our year with a slower at least in our planning, in a slower first half and a stronger, better second half. So we’ll see how things unfold.

Of course, have new products, some will be great hits and that will allow us to go faster. And I hope they all are, but I don’t know yet. But it’s more a second half story. We also have we will have we’ll be entering in the second half not of course, the comparative is North Asia, but it’s really within North Asia, it’s Travel Retail, because the story of Travel Retail is that Travel Retail Asia remains very negative and set out today, both Hainan and Korea, which were what we call the downtown stores in Travel Retail have really lost traction with the reduction the healthy reduction of Daius and its more airports over the world that are driving the growth of Travel Retail. But the second half of last year, we were already in sellout in negative territories, in strong negative territories for Travel Retail, but that will be part also of the easier comps.

So that’s what I can tell you on the progressive acceleration. And sorry, what was your second question? Because I Walmart. Yes. Well, on Walmart, I wouldn’t say that we benefited from their acceleration into beauty.

We are actually encouraging them a lot to focus more on beauty. But they are today, if I look at the situation, there are some positives and negatives. The positive is indeed they are wanting to accelerate in beauty and they are one of our strongest partners in North America. And of course, we are absolutely determined to support them in their own desire to accelerate in beauty, particularly, of course, for our mass products, but also for our mass medical brands such as CeraVe and or even La Roche Posay. But on the other hand, if I’m sincere, I visited a very beautiful Walmart a month ago.

And right now, they have taken these anti theft measures where they have locked under windows makeup and skincare in their stores. And of course, that has a very negative impact on the sell through of Beauty. And if I look at year to date, the sell out in the Walmart is not positive. So the good thing is that there were some Canadian retailers that gone that same direction a couple of last year or two years ago. And we’ve proven to them that it was in the end, it was more detrimental than beneficial.

So right now, yes, Walmart is more into beauty. But if they want to sell beauty, which is partly an impulse purchase, having to call sales assistant that comes from the other side of the store to sell you or to give you a lipstick is not necessarily the best way to accelerate beauty. So that’s part of the discussions we have with the Walmart team. And I must say they are very positive about working on these issues and developing the category because it’s a big potential for us and for them.

Sarah Simon, Analyst, Morgan Stanley: Great, thanks.

Alessia, Conference Operator: Next question is from Thomas Sykes, Deutsche Bank. Please go ahead.

Eva Quiroga, Global Head of Investor Relations, L’Oreal0: Yeah, good evening. Thank you. Just firstly on the IT transformation, Could you say whether for the full year you expect IT switchover to be positive, negative or neutral? And how much of your global revenues are currently on the new system? So how much if we got further to go?

Sorry, I guess in addition to that, you didn’t quite answer the phasing of when this quarter’s benefit would reverse. So any view on that, please? And then just on FX, you’ve given the FX at the March, but obviously things have moved quite a bit then. I don’t know whether you could give a view on the spot impact to FX and perhaps importantly, the net financials number. I don’t think you’ve given a guide on that yet.

Presumably that’s impacted by derivatives in there. Yes, please.

Christophe Babul, CFO, L’Oreal: Okay. So I’ll take both questions. The first one is on IT. I can tell you that the implementation of our new IT system is going quite well. We just launched China.

That was early April and it was a very successful one. And we have a couple of big countries yet to come by end of this year, UK and Australia. So difficult to assess exactly what will be the net impact, but I guess it will be minimal. So for the full year, we should not see any big discrepancy between this year versus last year.

Nicolas Irenumus, CEO, L’Oreal: But usually it reverses the following We never put like six months inventory.

Christophe Babul, CFO, L’Oreal: So always a small two to three weeks inventory. So it disappears after one or two months. Then regarding FX, so of course, very difficult today to predict because U. S. Dollar was at 1.03 just a couple of weeks ago.

Today, it’s close to 1.15. So I’ve done some simulations basically when you look at the sales. If, for example, we keep the current exchange rate at $1.15 versus the U. S. Dollar for the full year, then probably the impact will be at around two fifty to 190 basis points on the net sales, negative impact.

Now, we will see it’s very volatile, so I will not reach any conclusion

Nicolas Irenumus, CEO, L’Oreal: as of today. But of course, we’ve hedged our internal

Christophe Babul, CFO, L’Oreal: And as you know, of course, our internal transactions are fully hedged. So of course, we are pretty well protected on the P and L. So no impact if the rate keeps the current situation.

Eva Quiroga, Global Head of Investor Relations, L’Oreal0: And the financials impact of FX, I guess, as derivatives in that, sorry.

Christophe Babul, CFO, L’Oreal: No, what I can tell you is for the time being, when I look at the FX impact, so I compare the current hedge rates of this year versus last year, we have a negative impact. So this has been factored already when we build the budget. So we have a negative impact actually, which is in the range of EUR 50,000,000 and mainly impacting first semester.

Eva Quiroga, Global Head of Investor Relations, L’Oreal0: Okay. Thank you very much.

Alessia, Conference Operator: Final question is from Ashley Wallace, Bank of America. Please go ahead.

Eva Quiroga, Global Head of Investor Relations, L’Oreal1: Good evening. Thank you for taking my questions. I actually have three from my side. The first one is on Mainland China. You mentioned that the beauty market growth in Mainland China was close to flat in Q1.

I was wondering if you can share how L’Oreal performed in that context both from a sell in and a sell out perspective. As I think last year in Q1, you still had a pretty tough comp from it from from on sell in. And then maybe any color you can give on like value versus volume trends in your China business in the quarter? The second question is just on U. S.

Distribution. That market has seen pretty dramatic change over the last couple of years, especially if you think about, I guess, Amazon taking share versus drug drugstores losing a lot of share. Can you maybe help us contextualize what percentage of your business comes from, say, like, Amazon drugstores and the specialty beauty retailers at the moment and how that compares to a few years ago, even if there’s, like, broad comments. And then the third question is more of, a math question on the IT phasing. I think last year, you had a hundred and 30,000,000 benefit from IT phasing.

So it was, like, headwind this year, and you’re saying that the net benefit in total this year is $100,000,000 so far in the first quarter. So the gross benefit to the first quarter twenty five being around $230,000,000 I think when I read the statement from a regional perspective, that ties into eight fifty basis points benefit to Asia. However, when I look at it from the perspective of the divisions, you say 300 basis points benefit to L’Oreal Luxe, which seems to only account for half of the benefit of IT phasing, and I was wondering if you can help us understand where the other half of the phasing benefit is accounted for from a divisional perspective, or if my math is wrong. Thank you.

Nicolas Irenumus, CEO, L’Oreal: All right. So on the Mainland China, indeed, the market was flattish and slightly like I don’t know if it’s like minus 0.2% or minus 0.3% or something like that. And we are roughly one point above that growth in sellouts. And as I said, we are above the market in Pro Hair with strength of Kerastase, significantly above the market in Derma with double digit growth on our Derma brands. We are above market by one point on luxury, whereas we are very strong leaders.

And I have to say, I was very pleased to see that we increased our share and our share on the global on the mainland market is now significantly superior to our share in the travel retail world, which is something that is very important for the health of our business. So we are gaining share. I think we are also benefiting from the serious work we’ve done to protect our Luxury business in Mainland China. And as I said, we are below market CPD, where the market is slightly positive and we’re slightly negative. So overall, we win share and we win share both online and offline, knowing that the online market is positive, whereas the offline market

So I think that’s the important information. Talking about selling is a bit complicated because as you mentioned it yourself, there is a significant chunk of the selling, which is the inventory building of our NEO transformation project. So it would not be I would have to recalculate by division brands, etcetera, which we haven’t done. So what is clear is that we’ve put a little bit of inventory that will phase out on Q2 and we continue to the important thing for us is to win share in sell out. And but the most important news for me is clearly the fact that the market seems to be more stabilized.

The phasing of some of the holidays, Valentine’s Day was a bit beneficial this year. So we’ll see whether it’s confirmed in the second quarter, the big 06/18, eighteenth of June promotion. So we’ll see on China. But I would say the teams were positive. When I went to China, I met several officials of the Chinese government, the secretary of the Guangzhou Province and then the secretary of the Shanghai Province.

And they were both what was interesting is that they were both talking a lot about boosting consumption, about the fact that the real estate crisis was, according to them, again, a bit more behind. So they were I felt, if not confidence, at least real determination to boost local consumption. Of course, that was before the tariff hike. So I don’t know what all this will generate, but there was at least a focus on boosting consumption from the Chinese authorities. On U.

S. Distribution, I’m not going to give you all the details, but clearly the weight of e commerce has increased for us. The U. S, as I’ve said several times, was one of the rare countries where our share of online was below our share of offline and it still is. But we are progressively catching up with the of course, the development of Amazon, but also working with walmart.com or sephora.com.

So the online is accelerating in The U. S. And it’s very positive for us. And clearly drugstores, as you mentioned, are lowering in the weight of our business because they are struggling themselves to be successful in U. S.

Market. I don’t know if you want to add anything Christophe on that topic, but No,

Christophe Babul, CFO, L’Oreal: maybe I can answer on the third question because you wanted to know a bit what is the split by division. Of course, big impact on And then the second division that is most impacted when you compare the IT implementation in 2024 and 2025 is of course our Professional Products division, where here the growth is impacted and it’s nearly 800 basis points. On the remaining two divisions, it’s marginal.

Eva Quiroga, Global Head of Investor Relations, L’Oreal1: Okay, thank you.

Nicolas Irenumus, CEO, L’Oreal: Okay, Ashley, I think you were the last one. So we are wishing everyone who is still on the call a happy Easter. And hopefully, well, hopefully, we’ll be speaking to you in a couple of months.

Christophe Babul, CFO, L’Oreal: Thank you very much and happy Easter.

Alessia, Conference Operator: Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.

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