Hong Kong company reporting season

French beauty giant L’Occitane’s profit hurt by US tax reform

Hong Kong, Brazil, China and the US are its four fastest-growing markets

PUBLISHED : Monday, 11 June, 2018, 8:39pm
UPDATED : Monday, 11 June, 2018, 8:45pm

L’Occitane International, the first French company to go public in Hong Kong in 2010, on Monday reported a 27.1 per cent drop in annual net profit, as it was hurt by the US tax reform, increased outlay on marketing and one-off costs related to opening of new stores.

Net profit for the financial year ended March 2018 reached 96.5 million (US$113.6 million) compared to 132.4 million a year earlier, the company said on Monday. Net sales fell by a marginal 0.3 per cent to 1.31 billion.

“Despited ongoing foreign exchange headwinds and challenging retail environment in key markets, we made solid progress in emerging markets such as China, online channels, emerging brands and completed the acquisition of the brand LimeLife,” said Reinold Geiger, chairman and CEO of L’Occitane.

The US tax reform, which saw the biggest cut in US taxes, however resulted in a one-time increase in the effective tax rate for the company from 21.5 per cent in the previous financial year to 29 per cent in financial year 2018.

The skincare and fragrance maker is among a handful of US and European firms that are listed in Hong Kong, including luggage maker Samsonite and luxury giant Prada, as the city plays a more significant role in bridging investors between mainland China and the outside world through schemes such as stock connect schemes between Hong Kong and Shanghai and Shenzhen.

Just as its Western peers, L’Occitane has been cashing in on the aspiring middle class in China and other emerging economies like Brazil.

As such, Hong Kong, Brazil, China and the US were its four fastest-growing markets in the last financial year, while Japan remained its largest market.

In China, the cosmetics company continued to reap rewards from a hugely successful celebrity endorsement campaign by Lu Han, a former Chinese member of the South Korean-Chinese boy band EXO, in May last year, which led to a 15.1 per cent rise in same store sales growth in the mainland. Lu has 43 million followers on China’s equivalent of Twitter – Weibo – and has appeared in many popular Chinese entertainments shows and films such as the Great Wall.

The company said that it will sign an equally influential female Chinese celebrity as its brand ambassador soon.

The shares fell 0.6 per cent to HK$13.54 on Monday, and have lost nearly 14 per cent over the past two years.