Analyst Note| Rebecca Scheuneman, CFA |
We are not surprised that L’Oreal’s portfolio of strong brands (which underpins its wide moat rating) and its digital expertise (with 27% of first-half sales stemming from the e-commerce channel) have allowed the firm to return to its normalized prepandemic two-year stacked growth rate, with second-quarter sales of EUR 7.6 billion, 8.4% ahead of sales in the second quarter of 2019. First-half sales totaled EUR 15.2 billion, on track to meet our EUR 30.6 billion estimate for fiscal 2021, with like-for-like sales growing 20.7% year over year, given easy comparisons, as many salons and department stores were closed during the first half of 2020. We think it is notable that the firm again reported market share gains in all divisions (professional, consumer, luxe, and active cosmetics) and geographic regions, a difficult feat given the intensely competitive nature of the industry. We are also encouraged to see signs of life returning to the makeup category, which was devastated by social distancing and global mask mandates. While L’Oreal’s first-half makeup sales are 21% below the first half of 2019, it cited improving sequential trends across both mass and luxury channels, with strong performance in Maybelline Sky High mascara, L’Oreal Paris Infallible powder, and NYX Shine Loud lipstick. The travel channel (9% of prepandemic sales) is also beginning to recover, with an initial pickup in international travel and ongoing strength in Hainan, China.