(Bloomberg) -- L'Oreal SA sales climbed as the cosmetics giant benefited from higher demand for its luxury products, weathering virus restrictions in China.
Sales rose almost 14% on a like-for-like basis in the first quarter, the French company said late Tuesday, beating analyst estimates. Three of the four main divisions grew by double-digit percentages. The stock advanced as much as 2.8% Wednesday and traded up 0.8% at 9:07 a.m. Paris time.
The luxury unit, which includes skincare brands like Helena Rubinstein and Yves Saint Laurent perfume, grew by almost 18%. Total sales at the premium unit surpassed the mass-market consumer products business for the first time last year. The latter unit grew 6.9% during the quarter. L'Oreal experienced supply issues that won't be fully solved by the second quarter, Chief Executive Officer Nicolas Hieronimus told analysts in a call.
He forecast that the beauty market will grow between 4% and 5% this year, with L'Oreal outperforming this growth.
L'Oreal won't be able to fully offset the input-cost increases of its products, which will affect its gross margin in the first half, Chief Financial Officer Christophe Babule said during the call. That's despite measures to increase product prices, especially for new launches, as well as a reduction of advertisement and promotional spending as a percentage of total sales, he said.
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L'Oreal in China had double-digit growth during the first quarter, outperforming the market in the country thanks to marketing campaigns for Chinese New Year, Valentine's Day and Women's Day, according to the statement. Although current lockdowns are affecting demand, Babule said he's confident that Chinese consumers' appetite for cosmetics can recover quickly once virus restrictions ease, as happened two years ago.
“Longer-term, this market remains set to shine,” said Ross Hindle, an analyst at research firm Third Bridge. “The Chinese consumer has shown a strong desire for beauty products, and with an accelerating middle class, demographics remain in the group's favor.”
Hieronimus said the group is still selling essential products in Russia. “We're taking all the appropriate measures to offset any reputational risks” related to the company's presence there, he added. “Should the situation warrant it, we'll make adjustments.”
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Last month, L'Oreal announced it was temporarily shutting stores as well as its e-commerce site in Russia even though its plant near Moscow remained open for business. Russia represents around 1.5% of total sales for L'Oreal.
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