L’Oreal Bets On Garnier Turnaround

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PARIS (Reuters) – L’Oreal is banking on a turnaround in the group’s mass market division that makes Garnier shampoo and skincare treatments this year, despite pressures in the United States and slowing make-up sales, its CEO said on Tuesday.

The French cosmetics group has been trying to revive its sluggish mass market division at a time when its higher-end products like Lancome or Kiehl’s are finding favour with shoppers seeking luxury anti-ageing treatments for instance.

L’Oreal reported higher-than-expected first-quarter sales growth on Tuesday still largely driven by those pricier brands, which have outperformed the middle-of-the-road products sold in supermarkets for several years now.

But efforts to lure clients back to those aisles in western Europe with new organic Garnier ranges – chiming with a growing trend towards more natural ingredients – had produced some encouraging early results, CEO Jean-Paul Agon told analysts.

“We think that we will be able to accelerate in the consumer division”, Agon said.

Thriving Chinese appetite for beauty products across all price points is also sustaining growth.

The mass market results are still not stellar in comparison to other parts of L’Oreal’s business, even though that division – where analysts at Berstein described sales growth as “nothing special” – contributes the most to revenues.

On a like-for-like basis, which strips out currency swings and acquisitions, sales in the mass market division expanded by 3.3 percent in the first quarter, up from 2.8 percent a quarter earlier – but dwarfed by the more than 14 percent growth in luxury brands.

Overall across the group, sales rose 11.4 percent to 7.6 billion euros ($8.58 billion), and were up 7.7 percent like-for-like, beating forecasts.

Agon also flagged a “much more difficult” market backdrop in the United States, potentially linked to a lower number of consumer tax refunds or increasing gas prices, which could yet weigh on the mass market segment.

And make-up sales in this division are also lagging, he said, mirroring a slowdown in this category across the industry and spelling a period of more sluggish growth for L’Oreal brands like Maybelline, known for its $6.40 Great Lash mascara.

But the group is hoping to build on improvements in tough markets like Brazil, and it stressed that demand for skincare was riding high.

Rivals like Nivea maker Beiersdorf are also trying to revamp their mass market divisions and have pointed to a consumer trend of shoppers gravitating towards more personalised products that was putting pressure this part of the market.

In a positive sign for rivals like U.S.-based Estee Lauder, however, as well as luxury goods companies heavily reliant on Chinese demand, L’Oreal said sales there had not slowed at all in the first quarter.

Asia Pacific is now its biggest region, overtaking North America. ($1 = 0.8859 euros)

Written by Sarah White and Pascale Denis; editing by Dominique Vidalon/Emelia Sithole-Matarise/Jane Merriman for Reuters