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L'Oreal Shares Fall As Luxury Products Unit Misses Q3 Sales Estimates

By Scott Kanowsky -- Shares in L’Oreal SA (EPA:OREP) dropped on Friday after the French cosmetics group flagged that COVID-19 lockdowns in China had impacted performance at its key luxury products division in the third quarter.

Sales at L'Oreal Luxe, which includes well-known brands like Lancôme fragrances and Kiehl's skincare, rose by 4.6% like-for-like during the period to €3.61B, below consensus estimates of 9%.

The Clichy-based company said returns at the business hit by repeated COVID restrictions in China and its Hainan province over the summer. The relocation of L'Oreal's Asian travel retail unit and difficulties in sourcing fragrance bottles also weighed on returns.

However, Luxe still managed to reach record market share in mainland China, helping it retain its place as L'Oreal's largest division in terms of sales.

On a group-wide basis, revenue increased by 9.1% like-for-like to €9.58B, above estimates of 8.3% organic sales growth, thanks in particular to solid results for L'Oreal's active cosmetics and consumer products businesses. Demand for beauty supplies surged as well, especially in Germany, Spain and Britain.

But analysts at Jefferies noted that the broker understands this uptick includes a benefit from a €94.7M insurance settlement following a natural disaster that severely disrupted operations at a L'Oreal plant in Vichy. They added that, stripping away this payout, third-quarter results are "no more than in line."

Meanwhile, Morgan Stanley analysts wrote in a note that concerns are rising over a potential slowdown in hair salons, particularly in the U.S., as high inflation leads consumers to space out cuts and pamperings.

L'Oreal remained "confident" in its outlook for the global beauty market, adding that it plans to post growth in sales and profits in 2022.

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