L'Oréal's Q2 growth engine stalls, facing challenges in the "multipolar" growth story under the shadow of tariffs | Earnings Report Insights

L'Oréal, the beauty giant that owns well-known brands such as Lancôme and Maybelline, delivered a disappointing report to investors in its recently released second-quarter financial results.

The second-quarter financial report released by L'Oréal on Tuesday showed that the second-quarter sales amounted to €10.74 billion, a year-on-year decrease of 1.3%. More notably, the comparable sales growth was only 2.4%, significantly lower than the market expectation of 2.9%. However, the company's operating profit for the first half of the year was €4.74 billion, exceeding analysts' expectations of €4.69 billion.

Here are the key points from the financial report:

• Financial performance below expectations: Second-quarter sales fell 1.3% year-on-year to €10.74 billion, with core comparable sales growth of 2.4%, both below analysts' expectations of 2.9%. In the first half of 2025, net profit (excluding non-recurring items) was €3.78 billion, a year-on-year increase of 1%, and the operating profit margin improved by 30 basis points.
• Mixed results in core business: The professional products division led all departments with a growth of 6.5%. In contrast, the core high-end cosmetics division showed weak growth of only 2%, lagging behind the mass consumer goods division (2.8%) and the active health cosmetics division (3.1%).
• Significant regional differentiation: The North Asia market (especially China and South Korea) and travel retail channels were major factors dragging down performance, with sales in the North Asia region declining by 1.1% year-on-year in the first half of the year. On the other hand, emerging markets became a highlight of growth, with the South Asia Pacific, Middle East, North Africa, and Sub-Saharan Africa and Latin America regions achieving rapid growth of 10.4% and 10.3%, respectively.
• Tariff clouds: The European Union's 15% tariff on cosmetics imported from the United States has become a new significant risk. Approximately 30% of L'Oréal's sales in the U.S. rely on imports, and the CEO expressed serious concerns about this, planning to lobby for exemptions while not ruling out the possibility of future price increases or shifting production to U.S. factories.

After the financial report was released, L'Oréal's ADR price in the U.S. fell by 1.15%. The market is closely watching whether L'Oréal's "multipolar" growth model can truly withstand the dual pressures from the Chinese market and trade frictions with Europe and the U.S.

Under the shadow of tariffs, the "multipolar" growth story faces challenges

L'Oréal's sales in the North Asia region fell by 1.1% year-on-year in the first half of the year, amounting to €5.39 billion.

Although the company claims that "adjusted for changes, the business in mainland China has resumed growth," this "modified" statement has raised questions in the market about the authenticity and sustainability of its recovery.

In stark contrast, the "multipolar model" emphasized by CEO Nicolas Hieronimus is showing its effects.

Emerging markets have become a key force in rescuing performance. In the first half of the year, sales in the South Asia Pacific, Middle East, North Africa, and Sub-Saharan Africa regions surged by 10.4%, while Latin America also recorded a strong growth of 10.3% However, the growth in these regions is still difficult to completely offset the weak performance of the company in core markets such as Europe (growth of 3.4%) and North America (growth of 2%).

In addition to weak internal growth, external macro risks are becoming increasingly severe. The European Union recently agreed to impose a 15% tariff on EU cosmetics imported from the United States, which is akin to adding insult to injury for L'Oréal. CEO Hieronimus candidly stated:

I don't think this is a good deal.

The impact of this policy should not be underestimated, as approximately 30% of the products sold by L'Oréal in the U.S. market are imported. Hieronimus revealed that the company will write to European leaders seeking an exemption, but also acknowledged that this could ultimately be "costly."

Potential countermeasures for L'Oréal include raising product prices or shifting more production lines to its four factories located in the United States.

Weak Growth in High-End Business, Fragrance Category Shines

From a business segment perspective, the once-profitable cash cow—the high-end cosmetics division—only saw a comparable growth of 2% in the first half of the year, lagging behind all other divisions, which is a dangerous signal for L'Oréal, which relies on high-end brands like Lancôme to drive growth.

The only bright spot comes from the fragrance category.

Hieronimus pointed out that L'Oréal's fragrance business is growing at a double-digit rate, far exceeding the market average of 7%. However, he also admitted:

Fragrances do have a certain pricing power, but we also have to consider the sensitivity of demand to price changes."

Overall, although L'Oréal's management expressed optimism for the second half of the year and plans to drive the "beauty stimulus plan" by launching heavyweight new products such as Prada men's fragrance and Miu Miu fragrance, analysts believe that the company's growth story is facing severe challenges