L’Oréal SA (EU:OR) shares climbed more than 4% on Thursday after the world’s largest beauty company reported second-quarter results that exceeded market expectations, supported by broad-based organic sales growth and a record operating margin for the first half of the year.
The group generated second-quarter revenue of €11.6 billion, an increase of 8.2% on a reported basis. Like-for-like sales growth, excluding IT phasing effects, reached 6.3%, outperforming the consensus estimate of 5.7% by 60 basis points and exceeding BofA Securities’ forecast by 30 basis points.
Broad-Based Growth Supports Performance
L’Oréal delivered growth across nearly all of its businesses, outperforming listed beauty sector peers by roughly three times during the quarter.
First-half EBIT increased 6.8% year over year to €5.063 billion, resulting in a record operating margin of 21.3%. The margin improved by 20 basis points from the same period last year and exceeded market expectations by 0.9%.
The expansion came despite a 70-basis-point increase in advertising and promotional spending, which reached 32.6% of sales. The higher investment was offset by improved leverage in selling, general and administrative expenses, together with a 10-basis-point improvement in gross margin to 74.8%.
Earnings Per Share Misses Estimates
Adjusted first-half earnings per share came in at €7.40, slightly below the consensus estimate of €7.52 and BofA Securities’ forecast of €7.48.
The shortfall was primarily attributed to a weaker-than-expected contribution from Galderma, in which L’Oréal owns a 20% stake that is now accounted for using the equity method.
Dermatological Beauty Delivers Standout Growth
Among the group’s business segments, Dermatological Beauty recorded the strongest organic growth at 11.1%, followed by Professional Products with growth of 10.1%.
Consumer Products posted organic growth of 4.6%, while L’Oréal Luxe, the only division to fall short of consensus expectations, grew 4.7%.
By region, SAPMENA led with organic growth of 12.2%, ahead of Europe at 6.7%, North America at 5.9%, Latin America at 5.3% and North Asia at 4.5%.
“L’Oréal delivered a strong first half,” said Chief Executive Nicolas Hieronimus. “At +6.5% adjusted like-for-like growth, L’Oréal maintained its strong momentum and expanded its outperformance of the global beauty market.”
Analysts See Further Upside
BofA Securities, which maintains a “buy” rating and a €440 price target on the shares, described the quarter as “a good hair day,” adding that the earnings beat could support a re-rating of the stock, which currently trades at around 26 times forward 12-month earnings compared with a mid-cycle valuation closer to 30 times.
The brokerage raised its 2026-2028 EBIT forecasts by between 0.7% and 1.5%, while lowering its earnings per share estimates by 0.6% to 1.9% to reflect purchase price amortisation associated with the Galderma investment.
BofA also identified the third quarter as an important catalyst, as L’Oréal will be compared against a stronger performance from the same period last year.
The company also confirmed a 50-year licensing agreement with Kering for Gucci fragrances and beauty products, effective from July 2027, one year earlier than previously planned. BofA expects the agreement to become modestly accretive to earnings once it makes a full contribution from 2028.
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