L'Oréal sheen will fuel M&A FOMO

Loreal SA

23/04/2026 12:20

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Yawen Chen

LONDON, April 23 (Reuters Breakingviews) - L’Oréal’s OREP.PA sheen shows that size matters. The French giant’s shares surged 8% after first-quarter results showed 7% revenue growth. That suggests investors still believe the world’s largest beauty company can grow faster than the market and shrug off the looming oil price shock. Its relative strength may also have implications for M&A in the broader sector.

L’Oréal seems to be having a good crisis. Whereas luxury peers like Hermès HRMS.PA International or LVMH LVMH.PA have warned of the impact of Gulf customers cutting back, the region makes up less than 3% of the $230 billion group’s sales. The maker of CeraVe lotion is also thriving in its biggest markets. North America delivered 8% year-on-year top line growth in the first quarter, while China expanded "in the mid-single digits" despite a sluggish backdrop, thanks to more "selective" consumers favouring premium goods. Chief Executive Nicolas Hieronimus says volume gains and price increases should offset headwinds such as tariffs, while even $100-per-barrel oil after the Iran conflict would add only about 100 million euros of extra annual costs.

It also helps that the French group does not rely on a single hero brand, thus avoiding the fate of Kering PRTP.PA, which is struggling with a troubled Gucci marque. Its broad spread of brands extends from salon labels Kérastase to dermatological and luxury goods, such as Lancôme, as well as mass market stalwarts like Maybelline New York.

Markets tend to reward that sort of scale with a valuation premium. L’Oréal’s market capitalisation towers over listed rivals. Over the past year, its shares have risen about 40%, while those of peer Estée Lauder EL.N have stagnated, and it now trades higher than its U.S. rival, and even some luxury groups like LVMH.

The lesson is not being lost on peers. Take the recent merger talks between Estée Lauder and Puig PUIGb.MC. Those were in part prompted by L’Oréal’s purchase of Kering’s beauty assets late last year, two sources told Breakingviews, which made it a greater threat to its rivals. The deal has spooked Estée Lauder’s share price, amid fears it will have to overpay to bring the controlling Puig family on board. However, L’Oréal’s relative resilience may reinforce the need for the deal, especially if oil and gas-ravaged consumers start to cut back.

As well as a rich valuation, L’Oréal’s balance sheet may also give it an edge. Forecast net debt to EBITDA of 0.2 times in 2026, according to Morningstar analysts, implies ample firepower. That may help in future auctions. L’Oréal is a likely bidder for the beauty business of the late Giorgio Armani’s namesake empire, alongside LVMH and EssilorLuxottica ESLX.PA. Fear of being left behind, however, may lead others to think about crashing the party.

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CONTEXT NEWS

L'Oreal posted its fastest quarterly sales growth in two years late on April 22 and said it was optimistic ‌about growth, despite growing concerns about a hit to consumer confidence from the ongoing war in the Middle East.

The Paris-based maker of Kerastase shampoo and YSL Libre perfume said first-quarter sales rose 6.7% on an adjusted like-for-like basis, as consumers in the U.S., China and Europe all bought more of its premium hair products and perfume.

Total sales for the three months to end-March came to 12.2 billion euros ($14 billion).

While L'Oreal said demand in the Middle East has been impacted by the U.S.-Israeli conflict with Iran, particularly in the UAE, and it expected a greater impact in the second quarter, sales in the region account for less than 3% of total sales, and the impact was expected to be "manageable," said CEO Nicolas Hieronimus.

L’Oreal shares were up 8% as of 0955 GMT on April 23.

L'Oreal's valuation has held up better than beauty and luxury peers https://www.reuters.com/graphics/BRV-BRV/egpbebjrgvq/chart.png

(Editing by Neil Unmack; Production by Shrabani Chakraborty)

((For previous columns by the author, Reuters customers can click on CHEN/yawen.chen@thomsonreuters.com))