Buoyed by Chinese consumers, L’Oréal defies earnings expectations

Thanks to an insatiable Chinese middle class, the world’s largest cosmetics company, L’Oréal, transcended supply chain disruptions, inflationary pressures, and lockdowns.

• The French beauty brand posted record annual sales in 2021, along with hearty profit margins, all amid a booming cosmetics sector in China.
• L’Oréal reported $10.4 billion in Q4 earnings breaking analyst forecasts that suggested the company would net $9.9 billion. The difference was partly a product of record sales on Singles’ Day 光棍节, a Chinese holiday in November celebrating singlehood.
• This was an 11.3% sales growth jump from Q4 2019. Despite pandemic-related slowdowns across China, the company finished the year with $36.6 billion in revenue, reporting a profit of $7.08 billion.

The context: L’Oréal China has a portfolio of 25 brands with products manufactured in several countries. With the pandemic disrupting supply chains, the company pivoted from physical to online distribution. Social media promotion, via influencers, on apps like TikTok combined with loads of online advertisements — which now comprise 70% of its total marketing budget — led to the record-breaking bottom line.

• Nearly a third of L’Oréal’s 2021 revenue came from online sales. China’s ecommerce platforms, specifically Tmall and JD.com, which average 198 million and 153 million monthly visits, respectively, led that figure.
• Sales of L’Oréal cosmetics in China have seen a 50% rise over the past two years.

The takeaway: Despite a pandemic and heavy competition in China’s domestic cosmetic companies, such as Chando and Pechoin, L’Oréal has a lot to look forward to.

Estimates suggest that an additional 320 million Chinese will join the middle class by the end of the decade. What’s more, the average Chinese consumer still spends just one sixth that of an American — a ratio that is expected to even out.

Good things will come to those who keep China beautiful.