L'Occitane:Solid Q4

L’Occitane recorded FY sales up +10% at constant FX to EUR1.18bn,above our expectations of EUR1.16bn. SSS continued strong in Asia, whileUS and UK delivered low single-digit SSS and sales growth in Q4.Management remain focused on growing the business by riding the ecommerceand tourism boom. FY16 also looks to be an exciting year forMelvita and Erborian with a strong line-up of store openings. We believeoutlook is improving. Maintain O-PF to a new price target of HK$23.50.

Q4 sales up +9%

Q4 sales were up +9% at constant FX, or up +18% in reported EUR terms.SSS came in at +5% in Q4, despite last year’s high base. China continued tobe strong with SSS at +13%, in line with the 9M. Japan also kept itsmomentum with SSS at +8% in Q4 (5th quarter with positive SSS), while HKSSS returned to the black at +9% thanks to an easy base and new productlaunches. Home market France saw a flattish SSS in Q4, but emerging brandshelped lift sales by +12% at constant FX.

Diversifying channel mix…

The company opened a net of 89 stores in FY15/03, of which 46% were inAsia Pacific. E-commerce also grew by an impressive +31% at constant FXand now accounts for 8.5% of retail sales. Overall sell-out remains the keyrevenue driver, accounting for 72% of sales. Management aim to open 80-100stores in the coming fiscal year. Meanwhile, sell-in was up +14% in FY15/03,primarily driven from very strong travel retail.

…and brand mix

While L’Occitane still accounts for 95% of sales, Melvita and Erborian shouldstart growing very rapidly this year. The company has just launched Melvita inChina. Management aim to open ten Melvita stores in the mainland, and 8-10in Japan (which now only has 13) this year. Erborian also has a solid pipeline,with its Paris flagship opening in mid-May, Korea in June/July and HK in Oct.

Maintain O-PF to a new price target of HK$23.50

We upgrade our forecasts to reflect strong sales momentum in Asia andhigher operating leverage. Despite volatilities in markets like Brazil andRussia, we believe that the outlook is improving in Asia. We roll forward ourforecasts and arrive at a new price target of HK$23.50, based on 22x(previously 20x) CY16 earnings. Maintain O-PF.