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L'Oreal sees China virus temporarily weighing on sales in Asia

By Sarah White
The logo of French cosmetics group L'Oreal is pictured in a retail store in Bordeaux

By Sarah White

PARIS (Reuters) - Maybelline maker L'Oreal <OREP.PA> forecast on Thursday that China's coronavirus health crisis would have a short-term hit on its Asian business, its biggest sales driver, though the group said it still expected to outperform cosmetics rivals in 2020.

Thriving appetite from Chinese consumers for luxury creams such as L'Oreal's Lancome range has fuelled sales growth at the French firm, which exceeded expectations in the fourth quarter.

Its rival Estee Lauder <EL.N> has also benefited from this trend and performed strongly in the last three months of 2019, though the Clinique-owner trimmed its profit forecast for 2020 on Thursday, citing the virus impact.

The outbreak has killed over 500 people in China so far, and is leading to travel restrictions that could affect beauty sales in airport duty free lounges.

L'Oreal's Chief Executive Jean-Paul Agon said the health scare would have "a temporary impact on the beauty market in the region and therefore on our business in China and travel retail in Asia, even if it is too early to assess it."

Asia Pacific accounts for nearly 35% of L'Oreal's revenue.

The group had 12,000 direct employees in China, Agon said in an interview with France's Les Echos interview on Thursday, and another 12,000 worked selling its brands in shops.

Its Chinese sites that were closed during extended Lunar New Year holidays were due to reopen on Monday, Agon said, though he did not specify what these were and whether they included factories. L'Oreal will hold a news conference on Friday.


MASS MARKET IMPROVES

Concern over the virus overshadowed a strong set of results, as L'Oreal made progress in the fourth quarter even in its most sluggish division, home to mass market products sold in supermarkets like Garnier shampoo.

Business across Asia picked up pace in the period despite street protests in Hong Kong that forced some retailers to close and caused some luxury goods firms' revenues there to plummet.

It reported a bit of a blip, however, in the United States where demand for make-up has dropped off, and its North American sales fell 2% from a year earlier on a like-for-like basis, which strips out acquisitions and currency swings.

L'Oreal said total fourth-quarter revenue rose 11.4% to 7.9 billion euros (£6.7 billion), up 9.6% like-for-like. That was up from like-for-like growth of 7.8% in the previous quarter.

For the whole of 2019, L'Oreal's net profit rose 9.3% to 3.98 billion euros, and its operating margin increased to 18.6%, from 18.3% a year earlier.

Agon said L'Oreal was confident of outperforming the broader beauty market in 2020. It grew around 5.5% in 2019, according to L'Oreal estimates.


(Reporting by Sarah White; editing by David Evans and Alexandra Hudson)