Best known for its cosmetics, France’s L’Oreal (LRLCY) is a rock-solid company in the midst of a makeover that will lead to faster growth, explains Tony Daltorio, editor of Growth Stock Advisor.
And here the main story is Asia and China. Its stock surged more than 7% after its recent earnings report thanks to Asian demand for its high-end beauty products showing no sign of waning, despite the trade war.
Sales in the Asia-Pacific region soared 25.8%. This demand pushed third-quarter sales to the highest quarterly growth rate in a decade!
The acceleration in growth in the third quarter was led by the company’s luxury division, home to brands such as Lancôme, Yves Saint Laurent and Giorgio Armani, which grew by 15.6%. Its active cosmetics division lifted revenue by 13.1%, driven by demand for so-called dermo-cosmetics, products that focus on skin health.
Its travel retail and e-commerce divisions are also achieving rapid growth. L’Oréal said that travel retail gained 29.9% during the quarter, while e-commerce was up 38.3% and now represents almost a tenth of total sales. E-commerce is accelerating thanks to the success of L’Oréal’s luxury brands on sites such as Alibaba’s Tmall platform in China.
I fully expect L’Oreal to continue to perform well because Asia’s enthusiasm for skincare and makeup is unlikely to fade.
Even if an economic slowdown hits, sales of low-ticket luxury items will hold up better than more costly items. And Chinese per capita spending on makeup is still just a small fraction of the U.S. figure, so there is ample scope for growth there.
Neither company will go up 25% a year, as do tech stocks when they’re hot. But they will allow to sleep well at night and give you a decent total return. That’s why own this stock.
