Morning Note: Market news and an update from L'Oreal.

Market News

US equity markets traded slightly higher last night – S&P 500 (+0.1%), Nasdaq (+0.2%). Today’s annual revisions to US monthly CPI will be keenly watched. Just a year ago, those tweaks were large enough to cast doubt on overall inflation progress. With Fed officials seeking more evidence they’ve tamed prices, that’s put policymakers and investors on edge. The 10-year Treasury currently yields 4.15%, while gold is $2,033 an ounce.

This morning in Asia, the Nikkei 225 was little changed (+0.1%), while Hong Kong fell in a short session (-0.8%) and China was closed for the holiday. The IMF urged the Bank of Japan to end bond yield control.

The Bank of England’s Jonathan Haskel says he wants more evidence that inflation risks are waning. The 10-year Gilt yield has moved up to 4.07%, while sterling buys $1.2618 and €1.1712. The FTSE 100 is little changed at 7,599. Barclays is to buy Tesco’s retail banking business.

It is not guaranteed the ECB will lower rates this year as inflation risks persist, Robert Holzmann told FAZ. “There is a certain chance that there will be no interest-rate cut at all this year or only at the very end of the year,” said the uber-hawkish governing council member.

Brent trades at $81.50 a barrel as Saudi Arabia is said to line up banks ahead of an Aramco share sale. Natural gas prices in the US have fallen over 28% in the past month as production is returning to near-record levels after gas wells resumed operations following the severe cold in mid-January. Additionally, technical problems at Freeport LNG’s export plant have restricted gas flow to the nation’s LNG export facilities, and record levels are not expected until the plant returns to full power.

Source: Bloomberg

Company News

Last night, L’Oreal released record full-year results which highlighted a weak end to the year driven by a slowdown in North Asia. In response, the shares are down 6% this morning.

L’Oreal is a world leader in beauty products, generating annual sales of more than €41bn across five categories: haircare, hair colour, skincare, fragrances, and make-up. Over the long-term, industry growth is being driven by the expansion of social networks, and with it the social beauty revolution, growth of the emerging market middle class, product premiumisation, and urbanisation.

The group owns a unique portfolio of powerful and complementary brands – including L’Oreal, Lancome, Garnier, and YSL – eight of which have sales above one billion euros. As a result of this, combined with strong product innovation and a cutting-edge digital presence, the group has consistently outperformed the market.

In 2023, like-for-like (LFL) sales increased by 11.0%, albeit a slowdown from the 13.3% growth generated in the first half. Growth in Q4 was only 6.9%.

Full-year growth was made up of a 4.1% volume increase, 5.5% price growth, and a 1.1% positive mix impact. In reported terms, sales grew by 7.6% to €41.2bn, with net M&A adding growth of 1.6% and currency movements contributing a 5.0% negative impact.

The group enjoyed broad-based momentum across all divisions. L'Oréal Luxe generated revenue of €14.9bn, up 4.5% in LFL terms, outperforming the luxury fragrance market. The division is now the global leader (in sales) in luxury beauty. In Consumer Products (up 12.6% to €15.2bn) all four of the group’s key brands grew in double digits. Dermatological Beauty (up 28.4% to €6.4bn) grew twice as fast as the highly dynamic dermo-cosmetics market. Professional Products (up 7.6% to €4.6bn) significantly outperformed the professional beauty market, supported by its strategic focus on driving haircare, strengthening its omni-channel approach, and conquering new markets.

By geography, the group generated double-digit LFL growth across all regions except North Asia (-0.9%, and -6.2% in Q4) which continued to be impacted by market softness in mainland China and the reset in Travel Retail. Elsewhere, Europe (+16.0%), North America (+11.8%), and Latin America (+24.4%) all achieved strong performance.

The gross margin remained very high at 73.9%, 150 basis points higher than last year. The operating margin rose by 30 basis points to 19.8%, driving operating profit up 9.2% to €8.1bn. EPS grew 7.3% to €12.08. The group has a strong financial position, with net debt (including financial leases) ending the year at €4.4bn, only 0.5x net debt to EBITDA. A dividend of €6.60 was proposed, 10% higher than last year.

Looking forward to 2024, the company remains optimistic about the outlook for the beauty market and is confident in its ability to keep outperforming it and to achieve another year of growth in sales and profits.

Source: Bloomberg