L’OREAL’S sales growth surpassed expectations in the fourth quarter despite weakness in China due to the recent Covid flareup that weighed on cosmetics demand. The company’s US depositary receipts rose after the report.

Sales increased 8.1 per cent on a comparable basis in the last three months of 2022, the French beauty company said in a statement on Thursday (Feb 9). Analysts expected 6.8 per cent expansion. L’Oreal’s active cosmetics unit saw the fastest growth rate, with solid demand persisting for its Cerave and La Roche-Posay creams.

The growth rate has slowed for three consecutive quarters, however, as inflation and disruptions in China limit demand for cosmetics.

L’Oreal’s US depositary receipts rose 2.3 per cent at 12.21 pm in New York trading.

In China, L’Oreal said “the beauty market was clearly affected by the public-health restrictions” in the country, describing conditions as “challenging” for its consumer products. It also noted a “drastic slowdown” for its luxury unit there.

Strict Chinese Covid-related lockdowns were followed by an abrupt dismantling of restrictions. That in turn caused a surge of infections that kept consumers and workers at home in December. The comparable sales growth of 4.9 per cent in North Asia was the weakest among the regions L’Oreal tracks. It still outpaced market estimates.

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Investors will have to weigh L’Oreal’s slowing momentum even as it continues to beat expectations. Chief executive officer Nicolas Hieronimus will speak to analysts on Friday and is expected to comment on how China has performed since the start of the year.

The results follow a pessimistic outlook from Estée Lauder Cos last week. The US competitor reported a high level of merchandise in stores in China and postponed its forecast for a return to growth there. Estée Lauder shares are down about 8.5 per cent since it posted earnings on Feb 2.

L’Oreal’s annual operating profit was 7.46 billion euros (S$10.6 billion), above analysts’ average estimate of 7.42 billion euros. BLOOMBERG