Profit jump: New sales strategy pays off for L’Occitane as net profits grow 21.8%

The firm recorded net sales of €1.42bn ($1.6bn), a growth of 8.7% from FY2018, withReinold Geiger, chairman and CEO of L’Occitane,  saying  the group expected to see enhanced profitability for the next financial year.

“Following the material improvements we have made to L’Occitane en Provence and combining this with the largely accretive consolidation of Elemis’ sales into our overall revenue in FY2020, we expect to see better profitability in FY2020 and beyond,” ​he said.

Pulse strategy success

The company attributed its success to its new ‘pulse’ strategy, which improved sales momentum and maintained profitability. This was despite broad macroeconomic uncertainties.

Like the entire retail sector, the group was affected by declining consumer confidence, as well as other factors such as the US-China trade war and Brexit.

The group’s performance in individual markets was also affected by local external factors, such as the slowdown in tourism to Hong Kong and the yellow vest protests in France.

The ‘pulse’ strategy was introduced last year and is anchored by five pillars: empowering teams; executing fundamentals especially in a retail context; adopting an omni-channel, mobile and digital approach; engaging customers; and strengthening brand commitments.

“In line with this strategy, the group has focused on investing in a disciplined and targeted manner, and seeking efficiency gains,” ​said L’Occitane.

In January, L’Occitane inked a deal to acquire skin care brand Elemis for $900m, the company’s biggest investment to date. The company hopes to use this investment to build up its portfolio of premium beauty brands.

“In the first year of implementing our new Pulse strategy, we are already witnessing early results. Sales growth for our namesake brand, L’Occitane en Provence has accelerated and we have maintained our profitability despite broad macroeconomic uncertainties and investing in LimeLife’s development. In fact, excluding LimeLife, our operating margin improved significantly in FY2019,” ​said Geiger.

The group’s operating profit rose 6.9% to €150.7m, while the operating margin was stable at 10.6%, despite an “unfavourable brand mix effect”​ from the LimeLife investment. Excluding LimeLife, the Group’s operating profit margin improved by 8%.

Key markets going strong

The US, Russia and China were the fastest-growing markets with sales growth at constant rates of 31.8%, 12.2% and 12.1%, respectively.

LimeLife, which grew 18.2% in local currency, mainly drove sales growth in the US, reported L’Occitane.

Growth in Russia was driven by healthy same-store sales growth, new store openings and the further development of wholesale and B2B channels.

In China, growth was driven by strong sell-out sales, despite having seven fewer stores than last year.

The strong performance of its marketplace channel, especially during key festivals such as Singles’ Day, Chinese New Year and Women’s Day, also contributed to the growth.

Sales in Hong Kong rose 8.6% thanks to travel retail sales and the launch of the L’Occitane en Provence’s Immortelle Reset serum. L’Occitane said this counteracted a marked downturn in Hong Kong’s retail market.

L’Occitane said it managed to boost its performance in its key markets with targeted and innovative marketing campaigns, differentiated to match local tastes in key markets such as the U.S., China and Japan.

The company also highlighted its investments in online and offline customer experiences that offer unique retail experiences while creating a convenient and seamless path-to-purchase.