Financial Data and Key Metrics - Sales increased by 7.5%, with a negative 2.3% impact from foreign exchange and a positive 2.5% from changes in consolidation scope [4][5] - Like-for-like growth was 7.3%, with units contributing 2.6% and value contributing 4.7% (3.3% price, 1.4% mix) [5] - Gross margin improved by 50 basis points to 74.8%, with underlying gross margin improvement of 70 basis points [4][8] - Operating margin increased by 10 basis points to 20.8%, a first-half record [4] - Net profit rose by 8.8% to €3.65 billion [4] Business Line Performance - Professional Products grew 5.7%, Consumer Products grew 8.9%, Luxe grew 2.3%, and Dermatological Beauty grew 16.4% [6] - Consumer Products profitability improved by 100 basis points to 22%, Professional Products by 90 basis points to 22.1%, and Dermatological Beauty by 50 basis points to 28.9% [10] - Luxe margin stood at 21.9%, down 130 basis points from last year [10] Market Performance - Europe grew 11.1%, North America grew 7.8%, and emerging markets grew 14.7% [6][7] - North Asia declined by 1.7%, primarily due to weakness in Mainland China, though the company gained market share in three of four divisions [7][19] - Emerging markets accounted for 16% of sales and 30% of growth [18] Strategy and Industry Competition - The company remains confident in outperforming the global beauty market, which is expected to grow by 4.5% in 2024 [21] - Key growth drivers include premiumization in haircare and fragrances, with emerging markets playing a crucial role in recruiting new consumers [22][23] - The company plans to expand its presence in emerging markets, particularly in India and SAPMENA, by introducing new brands and leveraging e-commerce growth [23][24] Management Commentary on Operating Environment and Future Outlook - Management highlighted balanced growth between value and volume, with online sales growing faster than offline, particularly in emerging markets [14][15] - The company expects continued growth in Europe and North America, with emerging markets maintaining double-digit growth [22] - In North Asia, particularly Mainland China, the market is expected to remain slightly negative in the second half, with Travel Retail gradually improving [21][22] Other Important Information - Research and innovation expenses increased by 7.1% to €667 million, representing 3% of sales [9] - Advertising and promotional expenses increased by 6.4% to €427 million, with A&P as a percentage of sales at 32.1%, down 40 basis points [9] - The company’s sustainability efforts were recognized by Moody’s, and its decarbonization targets were validated by the Science Based Targets initiative [21] Q&A Summary Question: Growth balance between H1 and H2, sustainability of haircare and fragrance premiumization [31] - The company expects global beauty market growth of 4.5% in 2024, with H2 growth around 4% [32] - Haircare and fragrance growth is driven by structural factors, including younger consumers and premiumization trends [33][34] Question: China market outlook and derma growth [37][38] - Mainland China is expected to remain slightly negative in H2, with consumer confidence being a key driver [39][41] - Dermatological Beauty grew 16% in H1, though growth slowed in Q2 due to poor suncare season and U.S. market slowdown [43][44] Question: Emerging markets growth slowdown [49] - Emerging markets growth slowed to 13%, impacted by Argentina’s economic issues and boycotts in SAPMENA, costing 2 points of growth [51][52] Question: Europe’s pricing normalization and sustainable growth rate [54] - Pricing contributed mid-single digits to Europe’s growth in H1, with volume increases compensating for slower pricing growth in H2 [55][57] - Europe’s growth is expected to remain above historical levels, driven by consumer confidence and market sophistication [58][59] Question: Gross margin and A&P spending outlook [63] - Gross margin improvement in H2 will be less pronounced due to lower input cost benefits and slower valorization [64] - A&P spending will continue to increase in absolute terms, with a focus on productivity gains through AI tools [65][66] Question: Aesop integration and India market progress [68] - Aesop’s integration is on track, with 38 new stores opened since acquisition, and new product launches planned for 2025 [69][70] - CeraVe’s launch in India is progressing, with a focus on building credibility with the medical community before scaling [71][72] Question: Luxe division in China and premiumization trends [73] - The company continues to gain market share in China’s Luxe segment, driven by innovation and unique product offerings [74][75] - Premiumization trends remain strong, though the company is adapting to consumer price sensitivity with smaller formats and refills [76][77] Question: Amazon’s impact in the U.S. and Asia Travel Retail dynamics [84] - Amazon has been a growth accelerator in the U.S., helping recruit new customers and clean up gray market sales [85][86] - Asia Travel Retail dynamics are being closely monitored, with daigou activity shifting to markets like Japan and Korea [87][88]
L'Oreal(LRLCY) - 2024 Q2 - Earnings Call Transcript