L'Oreal Co Eur Ord

Hello and welcome to the L'Oréal 9 months 2023 sales call. Throughout the call all participants will be in a listen only mode and afterwards there will be a question and answer session. Please note this call is being recorded. Today I'm pleased to present Françoise Levin. Please begin your meeting.

Thank you. Good evening. Bonsoir à tous. Welcome to this conference call for the release of L'Oréal sales at the end of September 2023. On behalf of L'Oréal, I'm pleased to welcome today Chief Executive Officer Nicolas Hieronymus.

Good afternoon.

Chief Financial Officer Christophe Babule.

Hello.

Global Head of Corporate Finance and Financial Communication Laurent Schmitt.

Good afternoon.

And of course, Eva Quiroga, Director of Investor Relations. Good afternoon. We hope you received and read our press release, which was sent out a short while ago. Let me briefly share with you the highlights of this release before we move to the Q&A session. At the end of September, sales increased 9.4% to 30.57 billion euros. The change in scope of consolidation was positive by 1.4%. It is mainly due to the acquisition of Skin Better Science in October last year and to the impact of hyperinflation accounting in Argentina and Turkey, to which one should add the acquisition of ASOP on August 30th. Foreign exchange impact was negative by minus 4.6% as all major currencies but the Mexican peso were down or at best stable against the Euro. On a like-for-like basis, growth came to a strong 12.6%. Turning to third quarter figures, Sales increased 4.5% to slightly above 10 billion euros. The change in scope of consolidation was positive by 2.4%, mainly due to ASOP, and currencies had a hugely negative impact of minus 9%. Q3 was yet another quarter of double-digit like-for-like growth at plus 11.1%. Looking at our track record versus 2019, We have stayed on course with a CAGR above 8% in the third quarter and the nine months, a truly remarkable performance among our peers. By division, at the end of September, on a like-for-like basis, consumer products and dermatological beauty both posted outstanding performance with growth of plus 14.5% and plus 28.7% respectively, Sales of the professional products division accelerated in Q3 to 8% growth over 9 months. And L'Oréal Luxe sales increased 6.1%. All regions posted double-digit growth except North Asia. In Europe, momentum remained very strong with outstanding growth of plus 17.6%. In North America, sales advanced 12.6%. The emerging markets were once again highly dynamic, with growth of plus 23.6% in sub-MENA SSA and plus 24.4% in Latin America. In North Asia, the continued remarkable outperformance of L'Oréal in mainland China was offset by the reset of Asian travel retail. Growth came to plus 1.3%. A few remarks to help you in your forecast for the end of the year. Extrapolating end of September currency rates until year end or 1 euro at around 106 US dollars would lead to a negative Forex impact of minus 4.7% over full year sales. With regard to changes in the scope of consolidation, the impact is likely to be positive to the tune of 1.8% over full year. In conclusion, we are conscious of the economic and geopolitical uncertainties. However, the strong performance, both in the third quarter and over the first nine months, gives us confidence in our ability to continue to outperform a dynamic beauty market and to achieve in 2023 another year of growth in sales and profits. On a more personal note, I would like to tell you that this is my last conference call. It has been an exciting and fascinating 14-year journey in such a thriving company that is constantly reinventing itself. I wish to thank all amazing L'Oréalians for their patience and passion. They have all helped build and relentlessly raise L'Oréal's profile within the global financial community. I also wish to thank you who are listening to this call for our sometimes challenging yet always enjoyable conversations, our memorable interactions, and above all, your unwavering support. I'm very pleased to hand over the keys to Eva Quiroga, whom many of you already know. I have no doubt that you will be in very good hands, and I'm sure that everything is in place for her, together with all the team, to drive the group to new heights. I thank you for your attention, And we will be taking your questions.

Well, first of all, a few words. First of all, I'd like to thank Françoise also for her incredible contribution. We're going to try to make this call live up to your expectations as your last call. And before answering your questions, maybe just a few words of introduction, which will be consistent with what I wrote in the press release, but I have to say that I'm I'm very pleased with the results of our last quarter as well as the year to date. The beauty market remains very dynamic. We estimate its growth at circa 9% after nine months. So it demonstrates its incredible resilience considering the context. And more importantly, I would say once again, L'Oréal demonstrates its capacity to overperform 1.3 times the market year to date, to gain share, and more importantly, demonstrate its capacity to compensate or offset temporary pockets of weakness, thanks to its balanced footprint in terms of regions, of divisions, and its agility to reallocate resources where ascending currents are the strongest. That's what allowed us to, you know, to have this plus 11.123, to stay on course with this As announced, over plus 8% CAGR over four years, quarter after quarter. We're going to discuss the highlights of this quarter. Of course, there's the incredible performance of CPD, record growth over nine months. We don't have higher growth in record. Low-health dermatological beauty, which continues to thrive at plus 28. And as far as regions are concerned, it's true that all regions kept the pace they had on the first half, except one, which we had announced and I guess we will discuss, which is Travel Retail Asia. But overall, as we titled the press release, Loewe has stayed its course to deliver another year of overperformance and of growth in sales and profits. pending all the uncertainties of this world, but we feel confident about the remaining part of this year. So thank you, and we are ready for your questions.

Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press star 1 1 on your telephone keypad now. Once again, that is star 1 1 on your telephone keypad to register for any questions. And one moment once we open the line for the first question. And our first question comes from the line of Guillaume Delmas from UBS. Please go ahead. Your line is now open.

Thank you very much and good evening all. Well, first of all, Françoise, a big, big thank you for all your help. And I think, you know, when dealing with me, all your patience over the years. So thank you very much. And of course, congrats to Eva. So two questions for me, please. The first one on China. I mean, maybe if you can provide a bit more granularity on your performance there, because it seems you're doing very well in mainland. It's a soft market, but you're doing well. But at the same time, you're also facing this travel retail reset. And on this, I mean, do you have good visibility on how long is it going to last and whether the peak of this adjustment is now behind you or not? And I guess looking at Q4, how should we think about the upcoming 11.11 festival? And then the second question on one topic. So you have a second topic. Second topic. I mean, actually, it's a highlight. North America, because there's been a sequential acceleration of an already quite strong base in the quarter. So any light you can shed on the drivers behind this strong performance. And I guess, should we see your Q3 growth in North America as a clear, clear evidence that you are not seeing any signs of changing consumer behavior, so no trading down or consumers going less to hair salons. Thank you very much.

Okay, so let's try to take things one after the other. On the Chinese market, indeed, I think they're, you know, I just come back from China, and the two things I can say is that I was not super impressed by the market, but I was super impressed by the L'Oreal teams and the performance. I mean, the market is, as everybody says, a bit slow to recover. It's a flattish after nine months. But L'Oreal continues to really outperform. We have a 10 points gap with the market. We're gaining share in all divisions. And that's really the result of great online activity, good offline comeback on the market where consumers are still you know, a bit shy in their spending, but we are achieving record shares. I'm thinking about L'Oréal Luxe in particular, where we are at a 33% market share lately, and that's really kudos to the teams, to the performance of our existing brands, of course, Lancome, L'Oréal Paris, YSL, that have continued to perform very well, SkinCeuticals. but also the first contributions of new brands like Takami, like Prada, which we've just launched in China. We also have a very solid performance of Helena Rubinstein, so everything premium in skincare continues to do great. So the market is a bit soft, but I have to say that our teams are really on the attack and gaining share. So that's the... the picture of China. As far as W11 is concerned, it's too soon to tell, obviously, because the pre-sales are starting in late October, so we'll see. Let's say that my take of this at this point is what I see in the Chinese consumption patterns since the beginning of the year is that the shy consumers are less shy during the big events. And we've seen that whether it's during Valentine's Day, where it's 6-18, The market has had its best peaks of growth during this month, as if, I would say, the consumers were waiting for the moments when there are promotions or new offers to build their own inventory. Usually, we do overperform on these big events. Frankly, I have lots of hopes for W11, but it's too soon to tell. And so far, that's what we've seen this year. Events have been successful, and we've been over-performing on these events. So that's my answer to the second point on China. And as far as travel retail, I think in the last call, I had announced that following the reset of the policy regarding travel retail and the crackdown on Daegu, the market has very significantly It's a sellout, a slowdown, and because it's a new consumption paradigm, we have inventory to reduce, and we've been focusing over the summer in reducing significantly our stock in trade. We've actually gained a little bit of share in sellouts, but it's in a lower sellout. So what I would say on the travel retail impact on our business is that, one, it's circumscribed. It's limited to travel retail Asia, and even within travel retail Asia, it's limited to Hainan and Korea, which together are weighing a bit less than 5% of the L'Oréal Group's turnover, which means that it's limited. So circumscribed, limited, and temporary. So as far as your question about how long will it take, I think the inventory reduction will probably last until the end of the year, and that will set us up for a better pattern in 2024, particularly, of course, in the second half of the year. So that's globally the picture of... of China, and clearly we are all still very ambitious for this country because we have many cities to conquer. We're opening new cities this year, but we have a very ambitious plan for next year. It's important to remind that In China, our brands are not totally fully distributed, and we have only the sub-brands that are like L'Oréal Paris and Lancôme who are in 150 cities, but a lot of other brands can open new doors, including Lancôme. Of course, we'd like the market to be more dynamic, but what we've proven so far is that we don't need the market to grow, and that's what we intend to continue to do. As far as North America is concerned, I must say indeed that I'm pleased with the results of the teams. And to answer your question in terms of seeing signs of reduction of consumers' appetite for beauty, we don't see major decelerations. We see small decelerations here and there, but overall it remains very dynamic, and we continue to see our growth in all four divisions being very positive. So again, the confidence is high. We're entering the holiday season in North America, and holiday season is fragrance season. And it's true that in our L'Oréal Luxe business today, the one part of the catalog that's the most performing is fragrance. So we are ambitious for the end of the year.

Thank you very much.

Thank you.

And one moment, please, whilst we take the next question.

And our next question comes from the line of Celine Parnousi from JP Morgan. Please go ahead. Your line is now open.

Thank you very much, and good evening, everyone. My first question is maybe to come back on that developed market performance, which clearly was quite strong both in North America and Europe. So obviously there are two different regions, but could we maybe if I take one by one understand what happened in North America in terms of that performance, sell-in versus sell-out, market share gains, and if you could give us a bit more granularity in terms of the division performance for North America. And, you know, I would say Europe, could as well call out what has driven that strong number. I mean, I know it was already 20% in Q1, but still remaining quite strong despite the comp that you had called out, by the way, on higher pricing in the second half of the year. So that would be my first question. And just maybe if I could add as well a second question on China mainland. I get from what you said at nine months that China growth was about 5% to 6% in the third quarter in the mainland. Is that more or less correct? And you said that you outgrew the market. So what is the market growth? And what do you think, if you could tell us what has been the difference in market growth between mass market and luxury in mainland, please? Thank you.

Okay, so let's take them one after the other. So first, North America, I'll get back to this. So the market in North America remains very dynamic over nine months, and it's particularly driven by makeup and fragrances, but good contributions, which are both going double-digit at market level, and good contribution from skincare and hair. And we have had strong performance across all four divisions. So just to give you more granularity, as you said, dermatological beauty is in the high 20s in growth, luxury is in mid-teens, the mass market is in very high single digits, and professional is in mid-single digits. So we have actually three divisions that I would say, if CPD is so close to a double digit, we could almost consider it as such. So all divisions are growing, and of course it's a blend of innovation, of digital activation, of pricing, and it's true for all developed markets. I have to say that, because we didn't get the question, but it was mentioned in the in the press release that overall our third quarter growth remains with the same pattern in terms of volume value split. So we have slightly over a third of our growth coming from volume which means that L'Oreal continues despite valorization continues to grow in units and that's been a driver of course for the US as it has been and it is for Europe. If I go back to The European market now, Europe is also, you know, very dynamic. As we say, great vintage because it's very broad base, the growth. So, first of all, every quarter was up in strong double digits. Every country grew in double digits, of course, except Russia. And in most countries, we are well ahead of the markets. And every division grew. Of course, it's led by dermatological beauty and the consumer products division. But luxury is also growing at double digits. So, and in Q3. all divisions grew in double digits in Europe. So it's positive. Of course, there is a price effect like in North America, which in both cases is going to progressively level off as we enter the comparative of last year's price increases. But what's important is that volumes remained positive in every quarter. So even though in some markets in Europe, volumes are decreasing a bit but we continue to be our you know our consumers which are upper middle class consumers in most cases are attracted to our products to our uh and to our uh innovation so uh so that's uh that's the situation in europe and christophe wants to add something no i will add in fact uh

because it was part of your question. The constituent of the growth is the same as the whole group. So we have more than one-third is volume, which is quite incredible for Europe. One-third is volume, a little bit more than one-third, and the rest is value.

So, and your The other question was on the growth of China. So as we said, China has been growing at plus 7.7 in Q3. On the market, that was year to date, it was flat. Year to date, China is at 7.7. Yeah.

And Q3 is even a little bit higher. It's 7.9. Oh, sorry. So just to be... 7.9.

And the market is flattish here today. And the summer was made of high and lows. Bad July, great August, average September. So it remains overall this kind of mute growth situation, which, again, as you can see, does not prevent our brands from growing.

meaning that all the growth has been done on gain of market share. And what is even more remarkable is that this is visible in all four divisions in China.

Thank you. Can you clarify the market flat share to date? What is mass market? Does this look in China in terms of market growth?

I'm trying to find that. The market is flat. The market is in... mid-single digits on luxury, slightly negative on math, mid-single digits on dermatology, and slightly negative on professional.

Excellent. Thank you.

And in each case, we are significantly above the market with, of course, the biggest gap on dermatology and professional, but that's not expected. But luxury continues, as I said. to be really impressive in its capacity to gain share. So, again, kudos to the team there.

Thank you.

Merci, Céline.

Thank you. And one moment for our next question, please. And our next question is, comes from the line of Ian Simpson from Barclays. Please go ahead. Your line is now open.

Good afternoon, everyone. I'm very sorry that this will be Francoise's last results call. Like everyone, I've hugely enjoyed our exchanges over the years, but I wish you all the best for the future. Thank you. A couple of questions from me, if I may. Firstly, would you be able to have a go at quantifying how much of the D-stock headwind in Asia travel retail you had in the Q3 and whether we should expect a similar level of headwind in the Q4 before that kind of dropping out as we look into first half of next year. And secondly, just thinking a little bit about operational dynamics in the U.S. Some of the sort of scanner data there suggests a bit of a slowdown in the color cosmetics category through September and October. I just wondered if you could comment in terms of what you're seeing in U.S. color cosmetics and how that trended through the Q3 and what the exit rate looked like, please. Thank you very much.

You want to take this second question, Christophe?

Yes, so in travel retail, if we look at the overall market, we see a market that is in the Q3 at roughly minus 12%. And, of course, regarding our sell-out, we've been following more or less the same pattern. But we've been, of course, slowing down the sell-in And this is to significantly reduce our level of stocks. So this is already visible in end of September. And we do believe that we still have to do part of the job in Q4. I don't have the precise figures of how much stock, but the objective is to come back to the normal level of stock at the end of this year. So usually in that kind of business, we stand between three to four months of stock, which is the regular level of stock. So this is our objective to make sure that as soon as January 1st, if the market is up, of course, we'll be able to catch all the growth. So as usual, we adjust the stocks accordingly every quarter.

And as far as the U.S. are concerned on the makeup market, actually, it's a bit the tale of two cities because on the one hand, we've seen a slowdown of the mass makeup market in Q3, but we've seen also an acceleration of the luxury makeup market during the same quarter so of course it's very hard to predict looking ahead and more importantly we are which is an area where we can improve but we are progressively improving our performance in luxury makeup with a good comeback of Armani good results of YSL and a very good performance of Lancôme on Amazon which as you know with a opened Amazon for Lancome, and it happens to be very successful both in terms of sales, but also in terms of recruitment of new consumers, thanks to the media we are spending on the platform. So it's positive for the future of low-end locks in North America.

Thank you very much. Thank you. And one moment for our next question.

And our next question comes from the line of Bruno Montaigne from Bernstein. Please go ahead. Your line is now open.

Good evening. Now, my first question is about emerging markets in China. I think in the past you sort of discussed how the e-commerce penetration is helping you grow quite fast. It's driven by the brand and the consumer division quite different from other regions. So you've been growing at 20% or more for quite a while now. And that region isn't that much smaller than China. So what I'm trying to lead up to, it's driving more growth than China, even if China was to normalize somewhat. Am I fair to expect that the emerging market in China will be as big and bigger as a growth contribution for you than China will be? That's the first question. And the second question is, you were talking about the market growth trends in China mainland. And I was a bit confused. I thought you said that premium beauty in the market, not for L'Oreal, was growing faster than mass market. Did I hear that correctly? Because most of the online data seem to suggest the opposite, that premium is declining versus mass market doing better. And is there any reason why e-commerce would be so different? Thank you.

Okay. So the question on emerging markets, it's true that, frankly, the performance of our emerging markets are – is extremely strong. Both Latin America and our SAP MENA SSA region are growing in the area of 24%. There's a little bit of a race between the two to know who's going to be the fastest for the year. What I have to say, first of all, is the incredible resilience of these markets overall. They are growing double digits. It says that both are in the 12% and 13% type of growth. And, you know, we often get the question about whether we feel confident that it is going to last. And I have to say that if there is one positive effect for some parts of the world of the overall geopolitics is for emerging markets because you see both India getting a lot of investments and developing its economy, and you see the market accelerating. And a country like Mexico is also booming and has a strong currency because a lot of industries are being developed. There's lots of American investments in Mexico. And we see also Brazil benefiting from its ability to trade both with China and North America. So these markets, the economy overall and the consumptions are very solid. And it's true that at least in Southeast Asia, we are behind in terms of market share. Our market share in India is only 8% when it's 15% at global level. So we are accelerating and growing very significantly with a growth of over 20% in India at the end of nine months. So as far as contribution to growth is concerned, yes, this year, considering the the growth of the different regions and the impact of both travel retail and the slower market in China. The sum of the two emerging markets will be a biggest growth contributor to the group than North Asia. But the biggest growth contributor to the group this year will also be Europe, which is something we are very happy about. And as far as your question on China, yes, the premium part of the market is the fastest growing year to date. I think we have a significant contribution to that growth because we do animate the market with our innovations, with our new brands. And it's true also that... As you know, e-commerce is also, and the success of the big events such as 618 or Valentine's Day, is always favoring first the big brands, which is why L'Oréal Paris is very successful too, but also more premium products because that's both more interesting for the algorithm of the platform, but also that's where the promotions have a more significant impact for the consumer. We see great results for Lancome on their Super Brand Days or 618, same for Helena Rubinstein or Estee Lauder. And as I said, our two premium skincare brands in China, Takami

our japanese skincare brand and helena robinstein are having really spectacular growth in the in mainland china and it's true in our east division because it's not only true for luxury but the same for our ppd division skyrocketing or physical for our dermatological beauty thank you

In fact, the Chinese consumer has become, that's one of the things, the evolutions we see post-COVID has become, I would say, even more pragmatic, even more demanding on the quality of the product, on the functional benefits, as they say, of the products. And so when you have brands or products that really do perform in terms of efficacy and also in terms of brand aspiration, they can thrive on the Chinese market.

Thank you. And our next question is coming from the line of Olivier Nicolai from Goldman Sachs. Please go ahead. Your line is now open.

Hi, good evening, everyone. And thank you again, Francois, for your help throughout all these years. Two questions, please. First of all, ASAP has been part of the L'Oréal family now for the last six weeks. So I know it's still early days, but it would be great to hear if you could give us your first impression of the brand and kind of the ambition for the brand, how quickly it could become a billionaire brand, and when can we expect this EBIT margin, which on the numbers from the previous order was quite low to be in line with the rest of L'Oreal Luxe. And then secondly, on Lancome on Amazon in the U.S. has been a tremendous success since the launch. I was just wondering if it's a different consumer that you're recruiting there, Are you getting shares from other luxury brands, or are you actually pushing your mainstream consumer to premiumize to some extent? And would you consider doing the same thing in Europe, having Lancome being sold on Amazon in the UK or in France or in the rest of Europe? Thank you.

Okay, so eSoft, because we've been trained by eSopians, who are the... the employees of ESOP to say that you have to say ESOP and not ASOP, which was a mistake I was making. So I'm happy to share that with you. Aside from that, first of all, the first impression, I will start with the numbers. In September, ESOP did a plus 17 point something growth. So it's a very good top line growth, first of all. Second, we met the teams and we welcomed them and we brought them in. We brought with us the CEO of ESOP to our China trip because obviously China is the number one growth opportunity for ESOP. They have four stores in Shanghai, which are beautiful, but only four stores. uh in in shanghai uh so uh you know it's it's the it's the very beginning we are uh we are about to uh to work with them and to make them benefit from uh from our clouds and from our rnd support but frankly at the this is the moment where we're getting to know the teams but we are very frankly very exciting about at the prospect uh and about the growth opportunities On the specific topic of profitability, two things to say. First, as we said, and it's important for me to remind it, is that based on the numbers we have, and we are still really fine-tuning them, but we know that ESOP will have a 25 basis points dilution effect on the 12-year rolling period for the group, or 12 months, sorry. 12 months period for the group, which is something we have to take into account for next year. And overall, even though the objective is also to progressively improve this profitability, we must not forget that as it's a retail brand, the profitability is calculated on consumer pricing, consumer priced numbers, not on wholesale prices. So of course, in a percentage point, it's always going to be lower, but considering the growth potential, I think it will be very beneficial to the earning per share of L'Oréal in the years to come. So, you know, just the beginning and truly excited about it. We'll see what happens next. And as far as Lancome or Amazon is concerned, It's true, it's great, it's a great start, and by the way, what's interesting is that it's particularly good on makeup, where Lancôme, probably a tiny bit more, you know, facilities in the environment of a Sephora to speak to its consumers. First of all, I want to say that there has been a fantastic work done by the American teams along with the brand team to to create a shopping experience which is truly worthy of the brand equity of Lancôme. And if you go to the Lancôme page on Amazon, you will see that it's really as good as our own D2C brand site. And regarding consumers, we see that the first numbers are that around 75% are new to the brand. So maybe they were buying somewhere where we did not compute them. But overall, so I'm not sure the 75% is 100% accurate, but it's a good proxy of the fact that through a new distribution channel with a brand that's already quite known, you can truly reach new consumers and increase your penetration. So it's good news. And I think it's – I can't say whether it's taking from other brands on Amazon because not – yet many luxury brands are present on Amazon. We have more, I would say, accessible luxury brands such as Urban Decay or used to the people right now. But I think for me it's more a penetration tool than necessarily trying to steal from brand A or B. So very promising and of course we have to continue and to make sure that Lancôme continues to develop on this platform.

Thank you very much.

Thank you. And once again, ladies and gentlemen, if you would like to ask a question, it is star 11 on your telephone keypad to register. That was star 11 on your telephone keypad to register for a question. And our next question comes from the line of Ashley Wallace. Please go ahead. Your line is now open.

Hello. Thank you very much. I have three questions, please. The first one is a follow-up question on Asia travel retail. I guess the destocking in Korea started right at the beginning of the year, so four or five months ahead of Hainan. I was wondering if you feel that Korea travel retail has already ended its destocking, and if you can help us understand if you're seeing better trends there or not. And connected to that and with the Hainan weakness, can you help us understand the potential margin implication of the weakness in Asia travel retail on the second half EBIT margin for the Luxe division? My second question is actually on Europe. A little bit of a follow-up. I know you've spent a bit of time on it, but in some other consumer categories like luxury and retail, we've already started to see signs of weakness playing out with the European local consumer. Obviously, you've had great Q3 results overall, but is there anything that worries you in the European market? For example, trends toward the end of September, signs of down trading or volume weakness? And then my third question is more of a modeling question. At the beginning of the call, I think Francois mentioned an adjustment for hyperinflation. Can you just explain a little bit what that means? Does it impact anything but the FX component, or do you make some type of an adjustment for the like-for-like also?

Okay, we'll start with the last question with Christophe, and we'll deal with the other ones together.

I will start with maybe the travel retail. I think your question was on the stocking in Korea. So I can tell you that here the level of stocks is very healthy, so there is not much stocking to do in that part. Regarding the high nine impact, so just want to remind you that today high nine is around 2% of our sales. So maybe yes, for Lux it's always more complicated because of the level of profit, but it's really manageable. So it's totally, I would say, even if it's, it will have a small impact, but totally manageable.

It will have an impact for luxury, but for the group we can manage. That's in the end the principle of our compensation system between divisions, regions, that we can offset, as I said, temporary pockets of weakness, and it's true for top line, and it's of course true for profits. As far as Europe is concerned, we don't see impact on ourselves. We don't see slowdown or trading down on ourselves. As I told you, all four divisions grew double digits in Q3. It's true that in some markets, you see negative units, but not on our brands, because I think we have a very different profile of consumers, and it's fair to say that on some, I would say, Lower end brands, there is more reduction of consumption, including some own labels, but we continue to grow in units, and we have a good performance thanks to our innovations. I think it's important to remind always that beauty is an offer market. It's a market where Of course, some people buy basic products for just functional results, but our consumers are looking for the best of beauty. And when I see the success and results of a brand like the new hair color, good from Garnier, which is very premium, versus the market of Bond Repair from Elsev, the new YSL fragrance, the Micelle from Yves Saint Laurent, Karastase shampoos, or Metal Detox from L'Oréal Professionnel, which are all sophisticated, premium, high-quality products, these are flying. So there is, I would say, a very specific situation where we manage to continue to grow in units and value on the market. And you had a question on the hyperinflation.

On hyperinflation, exactly, yes.

Yes, so, well, it's a bit technical, but basically the like-for-like are calculated in non-comparatives, which are restated to reflect the variation in purchasing power between prior year and the end of the latest reporting period. So, and the restatement, of course, goes into the scope impact. So that's why this effect is reported there. Of course, happy to give you more details if you want.

I guess, like, so the impact is, so if you hadn't made this adjustment, the like-for-like would be better than what you just reported at 11.1.

Okay. It's very simple. We have 0.5% is related to Argentina, and 0.2 is for Turkey. So it's around 0.8.

Okay, perfect. Thank you.

Thank you. And one moment, please, for our next question. And our next question comes from the line of from Evercore. Please go ahead. Your line is now open.

Good evening, everyone. Goodbye, Francoise. Thank you very much. Welcome, Eva, Nicola, Christophe. I hate to need to come back to China, but I'm a bit confused. And I thought that it was very helpful in July when you introduced this term of the China ecosystem. Right. And if you can help us understand in, you know, thinking of the ecosystem, how much of the market is e-commerce? How much is brick and mortar? And this travel retail Daegu situation, how much would have been or was in the past in whatever period you have the data readily available? And how do you see that pie chart, say, 12 months from now?

So, it's a complicated question because I don't think I have the data to answer to you on the exact split between e-commerce brick and mortar in the overall Chinese ecosystem, particularly considering the changes and evolutions in the travel retail market where you have orders that are being placed online and then taken physically. So it's hard to make that split. We can comment on the weight of e-commerce in the mainland Chinese market, which Christophe is currently looking forward. If I go back to the ecosystem, we continue to see, as I said, uh different trends uh the chinese market where we are significantly gaining share on a uh on a muted market that as we said at a plus 7.7 growth and we clearly grew above the market in hong kong the market has bounced back strongly because a lot of tourists have gone back to hong kong though hong kong is is growing very very fast and we are benefiting from that rebound whilst being very uh you know careful about inventory levels and as you know uh high nine is the opposite right now the market is uh is down a double digit negative because of the of the change in this paradigm of the reset we've been talking about and uh our uh our own sellout is a bit better than this number but as we are just talking that's why our invoicing is uh is much lower. But overall, if I take the total Chinese ecosystem, our sellouts, our sales to consumers, have been up high single digits, and in a market that we said has been, is broadly stable overall. So substantially gaining market shares, and as far as the weight of e-commerce on the Chinese market is concerned, First of all, both channels are growing for L'Oréal, whereas at the market level, online is slightly positive, while offline remains slightly negative.

Yes, maybe on the pure mainland China, we see online going very strong for L'Oréal. So, double-digit growth, and offline is also growing, but mid-single-digit.

And a more strategic question, because you mentioned earlier, Nicola, that something like everything pre-made in skincare continues to be great, right? And if there is something that is particular about China, it is that these online promotions and Daegu that basically it appears that it reaches a type of consumer that is probably not as wealthy and younger than the same products in the West. Do you think that that is a good long-term strategy, meaning that once you say use Helena Rubinstein, you're not going to go back to something that is less so, or the contrary, if the economy goes south, So basically, you are going to lose these aspirational shoppers. Any view when it comes to that?

Well, first of all, just to remind that our strategy in the Chinese ecosystem, first of all, has always been focused, privileged, and always favored mainland China. So, you know, Daigu is not a strategy. Daigu was a phenomenon that we had to live with, and we are very happy that it ends. And that's... the market goes back to normal. And of course, whether on the big events or during or when the Daegu phenomenon was prevalent, you have a number of consumers that benefit from the offers or from better prices to discover our brands. And that's why, by the way, why travel retail will always remain a very important channel for us not just for promotions, but also because it showcases our brands in a way that, frankly, is absolutely second to none. So we do recruit consumers with our big events and with our travel retail activities. We also have consumers that stock up that are already loyal consumers. So it's a good way. We, of course, continue to sell outside of the big events, And what we are not at all afraid of is people, you know, abandoning our brands because, you know, if that was the case right now, we wouldn't see our most premium skincare brands growing faster. Actually, people are striving for quality. They want quality. And Helena Rubinstein, I don't know if you've ever tried one of the screams. but it's the best anti-age cream that we have in the group, and consumers love it. So today, it's actually a bit more difficult for mid-market brands than for premium brands. So our strategy is to continue to allow people to try our brands, and the way to do it, as I said, will be also to open new city. I remind you, because that's an information we... we share every now and then, but that our market share overall in China is extremely different between Tier 1 cities and Tier 3, 5 cities. It's over 25% in Tier 1 cities and it's below 10% in Tier 3 and 5. So right now, we see that we are opening new counters in Tier 3 cities and plus. That's where we gonna gain the largest number of consumers. Again, today we sell approximately 200 million consumers in China out of an addressable target of 400 million. So we have lots of people to reach. And of course, one of the ways to do it is through the big events you were talking about, but also opening doors, presenting the brands in a very beautiful way in these new cities. And what we see, that even in these Tier 4, 5 cities that we were serving already through e-commerce, could be Tmall, Double 11, when we open a counter or a boutique, it increases both the sales offline, of course, but also the sales online. because suddenly consumers discover the quality of the brand. So I don't think there is any risk on the strategy because mainland China has always been a priority.

Thank you, Nicolas. That was my base assumption, that once people try the good stuff, they don't go back. Thank you very much.

Thank you. And as we have no more questions registered, I now hand back to our speakers for any closing comments.

No, I think we are very, again, it was the last call for Francoise. She was very moved. I can tell you, you cannot see her, but she was very moved by everybody's comments. So I guess maybe some of you will invite her for a cup of tea. And in the meantime, we do thank you for your questions and your attention. And have a good evening.

This now concludes our conference call. Thank you all for attending. You may now disconnect.