L’Oreal’s incredible long-term growth story
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L’Oreal’s incredible long-term growth story

Luxury beauty company L’Oreal is the largest of its kind in the world. This size has been attained through a powerful trend towards stable, long-term, growth: in the last seventeen and a half years, L’Oreal’s share price has steadily increased, and today, it’s up 273.78%. This historic behavior should be reassuring to investors, but it opens the door to two questions: first, how has L’Oreal achieved this success; and second, can it continue to do so?

L’Oreal’s incredible history on the market

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SOURCE: Yahoo Finance

L’Oreal’s annual sales have dropped just once: in 2009, when the world was reeling from the financial crisis. Since then, those sales have bounced back, and they are boosted by successful strategic acquisitions (Urban Decay, NYX, and IT Cosmetics) and digital investment. These moves have allowed L’Oreal to appeal to Millennial consumers as they have come of age, and allowed them to avoid becoming the beauty company of choice for “women of a certain age”.

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L’Oreal is the world’s largest beauty company, so the fact that it managed like-for-like sales growth of 4.7% last year is impressive. According to UBS analyst Pinar Ergun, L’Oreal “has been one of the most agile firms of its size in the sector. It has invested in digital, acquired and globalized successful brands and invested in groundbreaking research and development, for example, 3D skin printing (for use in product testing).”

L’Oreal is also incredibly profitable when viewed against its peers: last year, the company had an operating profit margin of 17.6%.

L’Oreal’s position in the market is undoubtedly down to intelligent business decisions, but as luxury continues to recover from last year, that position may prove to be a boon. Chas Manso, an analyst at Société Générale says: “L’Oreal is the global leader in make-up, which is growing at twice the industry rate at 8%, versus 4%.” That’s great news for L’Oreal, and for the company’s investors.

Disclosure

Dominion holds L’Oreal in its Global Trends Luxury Fund.


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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.