L’Oréal China blemish may lead to messy breakout

Loreal SA

13/02/2026 12:50

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

By Yawen Chen

LONDON, Feb 13 (Reuters Breakingviews) - Late last year L'Oréal OREP.PA finance chief Christophe Babule laid out a pragmatic view of China. He argued that although the market was “back on track” he also warned that there really wasn't any credible alternative market for luxury growth. That caution now looks prescient. On Friday the $240 billion beauty giant's shares slipped 7% after it failed to meet sales expectations largely due to weakness in the second largest economy. The bigger issue is trouble in China makes it difficult to square the company's premium valuation.

On the face of it, L'Oréal 6% sales growth for the three months ending in December was only just shy of the 7% buyside funds had pencilled in. Yet, investors focused on a much thornier problem. Sales in North Asia, which accounts for more than a quarter of group revenue and is mainly China, essentially flatlined against expectations of more than 5%. The high margin Luxe division, which makes skincare products, fragrances and makeup also undershot forecasts, while Asia travel retail shrank. For a group whose premium skincare franchise depends heavily on Chinese demand, the region now looks like a structural vulnerability rather than a temporary weakness.

The market itself is shifting. Data from Chinese analytics firm Netvoices revealed in January that domestic champion Proya Cosmetics 603605.SS has overtaken L'Oréal Paris and Lancôme and is now ranked first in skincare by gross merchandise value across Alibaba's 9988.HK Tmall, JD.com 9618.HK and Bytedance's Douyin in 2025. The issue for L'Oréal is the Hangzhou-based company and similar rivals are launching products faster and are now competing aggressively in the mass market, drawing consumers away from pricier imports.

Chief Executive Nicolas Hieronimus is responding by scooping up local competitors, taking stakes in Chinese brands such as Chando and Lan to reach lower price points and expand into smaller cities. If consolidation accelerates, Proya itself could eventually emerge as a tempting target, though its growing size would make any deal expensive. The strategy nevertheless suggests the old formula of global prestige brands backed by heavy advertising is under pressure.

L'Oréal's valuation leaves little margin for error. The Maybelline owner's shares trade well above slower growing consumer goods peers, at roughly 26 times forward earnings while higher-margin, luxury titan LVMH LVMH.PA trades at 24 times. New entrant Unilever ULVR.L, which is making a big push into beauty, is valued on 16 times. Jefferies analysts also note that the company’s expanding operating margin is no longer being matched by rising reinvestment, with advertising and promotion spending flat as a share of sales.

If this continues and its advertising campaigns fail to reach new customers, L'Oréal could lose market share. China once helped boost L'Oréal's appeal among investors. Until the market becomes more predictable, the group's shiny valuation will be harder to justify.

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CONTEXT NEWS

L'Oréal said on February 12 its fourth-quarter sales rose 6% to 11.3 billion euros, short of some analyst forecasts of about 7% growth.

The Paris-based beauty giant cited problems in North Asia, mainly China, where revenues only grew 0.6% compared to analysts' expectations of 5.6% growth.

L'Oréal had highlighted improving demand for its luxury brands in China in the third quarter.

L'Oréal shares fell as much as 7% in early trade on February 13.

L’Oréal trades more richly than most luxury and beauty peers https://www.reuters.com/graphics/BRV-BRV/myvmqdaoxvr/chart.png

(Editing by Aimee Donnellan; Production by Streisand Neto)

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