The company's recent situation
L'Occitane released 2QFY24 sales data: revenue increased 17.1% year over year to 570 million euros (25.3% year over year under fixed exchange rate CER), slightly lower than our expectations. Sub-brands: 1) SDJ revenue CER increased 202% year on year; 2) LEP revenue CER increased 2.8% year on year; 3) ELEMIS revenue CER fell 2.4% year on year, mainly due to reduced investment in specific e-commerce channels in the UK (revenue from other UK e-commerce channels increased by double digits year on year) and US cruise business revenue decline (transportation delays caused part of revenue will be included in 2HFY24. If cruise shipping business is excluded, US revenue CER increased 18% year on year), but China's CER revenue increased by more than 200% year on year. By region: 1) American CER revenue increased 69% year over year; 2) Asia Pacific revenue CER increased 7.5% year over year; 3) Driven by SDJ and Erborian, EMEA revenue CER increased 2.3% year over year. Sub-channel: Revenue from wholesale and other channels, online channels, and retail channels increased by 41%, 29%, and 3.9% year-on-year, respectively.
reviews
Management stated at the performance meeting: 1) October sales trend: LeP revenue declined slightly year over year, ELEMIS growth rate was positive year on year (UK +10%, US +20%, China +20% or more (strong double digits), 2QFY24 revenue not included due to shipping delays will be included in October). The growth rate of SDJ declined due to the high base of 3QFY23. Revenue growth in China and Japan was positive year over year, but the US, the UK, and France were slightly negative. 2) The Chinese market: An additional marketing budget of 56 million euros is driving online channel traffic growth and hedging the conservative performance of offline channels. Double Eleven will focus on star products in the body care and hand care categories, focusing on larger and heavier products (more affordable per ml). The company will continue to maintain live streaming cooperation with KOLs. 3) Travel retail: 1HFY24 revenue increased 10-15% year over year, accounting for 10-15% of the company's revenue. Although the Asian travel retail business is facing challenges, EMEA and the Americas have benefited from SDJ's entry into this channel, showing a positive trend, so the company expects FY24's overall travel retail revenue to increase. 4) LeP maintained a growing trend in China, Southeast Asia, and the US, but fluctuated in Europe. The company plans to increase additional marketing investment in Europe. 5) ELEMIS will continue its high-end strategy. 6) SDJ: Growth comes from market expansion outside of the US (such as China, Japan), channel expansion (such as travel retail), and category expansion (such as sunscreen, hair care).
Before the acquisition, half of SDJ's revenue came from Bum Bum Cream, but currently fragrance sprays are the number one category. 7) Management will update the FY24 financial guidelines after observing the 3QFY24 holiday sales performance (the current guideline is a 17% year-on-year increase of revenue at a fixed exchange rate, and OPM is 12%).
Profit forecasting and valuation
We basically kept our FY24 and FY25 revenue and net profit forecasts unchanged, and maintained an outperforming industry rating and target price of HK$28. Based on a price-earnings ratio of 19 times FY24, we corresponded to 32% upside. The current share price is HK$21.2, corresponding to 14 times and 11 times FY24 and FY25 price-earnings ratios.
risks
ELEMIS volume fell short of expectations; macro-adverse factors such as the epidemic; risk of exchange rate fluctuations.