Yahoo Finance Beauty Stocks Take a Beating After Market Guidance Downgrade
PARIS — Beauty stocks took a beating Friday, a day after L’Oréal chief executive officer Nicolas Hieronimus told investors that the worldwide beauty market’s sales should increase between 4.5 and 5 percent this year, rather than above 5 percent, as earlier forecast.
His guidance downgrade, which was part of a fireside chat hosted by JP Morgan, came following ongoing market volatility in China and a slightly negative 6.18 shopping festival there.
More from WWD
Wacky and Wonderful Couture Beauty Looks From Days Three and Four in Paris
Why Mexico Is Becoming Increasingly Important to Beauty Companies
“Overall, Mr. Hieronimus showed continued confidence in L’Oréal compounding value algorithm, driven by top-line growth, though acknowledging that the beauty market is trending a tad slower than anticipated given disappointing dynamics in China,” wrote Céline Pannuti, an analyst at JP Morgan, in a note.
The mainland China market remained slightly negative in the second quarter of 2024, although L’Oréal keeps outperforming, she continued.
“We see a need for a rethink of lofty market growth expectations, not just in the short term, with resultant downside risk to OR consensus growth and its premium valuation,” wrote Molly Wylenzek, an analyst at Jefferies, in a note.
L’Oréal stock closed Friday down 3 percent to 410.05 euros. Since the start of the year, the company’s share price has lost about 9 percent.
Asian beauty companies’ shares also sank Friday, with Shiseido falling 4.95 percent, Kosé Corp. declining 3.6 percent, Kao Corp. closing down 2.9 percent and Pola Orbis Holdings Inc. softening 2.5 percent.
Over in the U.S., the Estée Lauder Cos. closed down 4 percent. In early May, analysts cautioned that the company’s recovery will not be linear, with it needing to jump-start sales in mainland China, as well as in its home market.
It is indisputable that the beauty market growth is set to slow, according to Wylenzek.
“As pricing growth begins to roll off, the industry is also dealing with anemic growth in China, a realignment of Diagou trade in Korea and Hainan, and a clear volume-led slowdown in U.S. mass scanner data,” she wrote. “The real debate is by how much and for how long.”
“Our expectation has been for China’s beauty sales to pull back in June given timing and consumer sentiment issues, as it seems to be the case,” wrote Javier Escalante, an analyst at Evercore ISI, in a note.
Best of WWD
