L’Oreal’s Chief Executive Jean-Paul Agon told CNBC Wednesday that he sees no slowdown facing Chinese consumers, despite simmering trade tensions between Beijing and Washington.
“In terms of consumption, at least in our categories … we don’t see any slowdown in the country,” Agon told CNBC’s Joumanna Bercetche. “What we see is a great appetite of Chinese consumers. There is also more and more income that has to be spent.”
He said the company was seeing a “premiumization” in the Chinese market, meaning consumers “not only want to buy more products, but they want also higher quality products, better products, more expensive products, which is extremely positive.”
Agon added that L’Oreal was not seeing any direct inflation pressures resulting from the U.S.-China trade war. The two countries have been engaged in a tense sparring of tariffs, targeting billions worth of goods flowing into each other’s markets. A recent report said that the U.S. was planning a new round of tariffs targeting the remaining $257 billion worth of Chinese imports to prepare for the possible event that neither countries reach a trade agreement.
“We are seeing here and there some increases, but with the level of growth margin that we have, it’s not going to impact very materially our business.”
L’Oreal on Tuesday reported 6.47 billion euros ($7.34 billion) in revenue in the third quarter, which was up 6.2 percent from the previous year and 7.5 percent higher on a like-for-like basis, which strips out currency swings and the effect of acquisitions. Analysts polled by Inquiry Financial for Reuters had expected comparable sales to rise 5.79 percent.
Agon praised L’Oreal’s latest quarterly results as the company’s “best quarter … in 10 years,” adding that strong sales growth was mostly due to the “very strong growth in Asia.”
Like luxury goods makers, cosmetics companies like L’Oreal or Japan’s Shiseido have been hit by fears over a slowdown in China, which sparked a stock market sell-off. Shares in the French beauty group have fallen almost 8 percent since a peak in August.
But, following the firm’s earnings statement, shares shot up by nearly 6 percent on Wednesday during morning trade. The company said on Tuesday that appetite for its mass-market brands like L’Oreal Paris and especially luxury labels like Lancome remained robust in Asia, with the pace of revenue growth in the region even accelerating from a quarter earlier.
A particularly strong performance in the luxury division, which also houses Yves Saint Laurent make-up and brands like Clarisonic, helped L’Oreal to beat expectations in the July to September period.
Agon said that, as well as China, India and Korea were among other Asian markets boosting the firm’s performance.
“But China is very strong,” he added. “Sales in China are flying, especially in luxury, and we have seen this now for a long time, and it’s going on.”
Agon said this meant L’Oreal was “not only taking advantage of this strong market but also gaining market share which is very good for the future.”
The company said there were some improvements in western Europe during the third quarter in this division, which also comprises brands like Garnier shampoo, but said that the Brazilian market in particular was still tough.
On western Europe, Agon said: “For us, we had two good years (in the region) — last year and the year before — this year is a bit tougher, but we are still confident. We keep investing in western Europe, and we count on the gain in market share to keep growing.”