L'Oreal SA

PAR:OR

Q1-2025 Earnings Call

[Operator]

Welcome to the conference call regarding L'Oreal sales at 31st of March 2025. The conference is about to begin.

I now hand over to Eva Quiroga. Ms. Quiora, please go ahead.

[Eva Quiroga-Thiele, executive]

Thank you very much, Alicia, and good afternoon to all. Thank you for joining us for the presentation of our first quarter 2025 sales.

I'm here with our CEO, Nicolas Hieronimus.

[Nicolas Hieronimus, executive]

Good afternoon.

[Eva Quiroga-Thiele, executive]

Our CFO, Christophe Babule.

[Christophe Babule, executive]

Hello. Good afternoon.

[Eva Quiroga-Thiele, executive]

And our Global Head of Corporate Finance and Financial Communications, Laurent Schmitt.

[Laurent Schmitt, executive]

Hello, Good afternoon.

[Eva Quiroga-Thiele, executive]

We know that, for many, this call is the last thing that stands between you and the long weekend. So Nicolas will make just a few brief opening remarks before we go to Q&A.

And with that, over to you, Nicolas.

[Nicolas Hieronimus, executive]

Yes. Good afternoon, everyone. So a few comments on this first quarter. As you know, globally, it's been a real rollercoaster of economic and geopolitical challenges with daily announcements. And in that context, I'm very pleased that we delivered organic top line growth of plus 3.5%, in line with our projections. Growth was boosted by EUR 100 million, which is the net impact of the IT-related inventory building between '24 and '25.

As always, there were some good surprises and some not so good ones. The U.S. were more challenging than anticipated. And China was slightly less bad than expected. Europe was once again our single best growth contributor. Emerging markets remain dynamic. Last year, we told you that we would step up our innovations in 2025, and I'm happy to say that our Beauty Stimulus plan is off to a very promising start with strong contributions from our divisions and brands, including a few products like Gloss Absolu from Kérastase, P-Tiox from SkinCeuticals, Make Me Blush from Yves Saint Laurent as well as the very aptly named Elsève Growth Booster by L’Oréal Paris. Its impact will only continue to increase as we extend our innovations into new markets and continue to launch more new products. Fragrances and haircare remained our 2 best-performing categories and our makeup stimulus plan is starting to bear fruit in a market that's unfortunately subdued.

Besides our obsession with growth, one of our key priorities in the current environment is to manage our P&L. In order to mitigate the impact of tariff hikes and it goes without saying that our truly global manufacturing footprint and our very healthy gross margin positions us relatively well versus our peers. And we will, of course, continue to put the right fuel behind our 37 global brands to further reinforce our global leadership. This makes me confident that we will continue to outperform the global beauty market and achieve another year of growth in sales and profits.

And with that, let's go to the Q&A.

[Operator]

[Operator Instructions] Next question is from Guillaume Delmas, UBS.

[Guillaume Gerard Delmas, analyst]

If I may, some housekeeping first. Christophe, can you maybe remind us what kind of tax rate you expect for this year? And also if you could give us the Q1 like-for-like by product category. So that would be the housekeeping. And then my 2 questions. So first on the outlook for the beauty industry in 2025, I mean at the time of the full year results in early February, Nicolas, you were talking about 4% to 4.5% market growth with some gradual acceleration through the course of the year. Is it still the case? Or given the increased geopolitical volatility, has it become much more difficult to forecast the development of the beauty industry this year and as a result, probably better to be cautious?

And then my second question is on your restructuring effort this year. I mean should we anticipate a more pronounced, a more significant focus on restructuring relative to the past few years? And how should we view this? Is it defensive, so very much an attempt at protecting margins? Or is it more L'Oreal going on the offense as well and trying to free up resources to support this Beauty Stimulus?

[Christophe Babule, executive]

So Guillaume, I go first, maybe with the first question. I think it was related to the corporate income tax. So what you can expect is, of course, it will depend on the mix of our sales by region, but basically more or less the same corporate income tax in percentage of last year, except that this year, as you know, we expect this exceptional corporate income tax to be of around EUR 250 million. So that will be the exceptional burden for this year.

[Nicolas Hieronimus, executive]

So on the other questions, first on the category. So as you've heard, our quarter has benefited from this extra EUR 100 million from inventory building, which I have not calculated by category. So I will give you the numbers by category, including this inventory building, which probably is a bit more skincare skewed because it was a China IT that was reset early April. But by category, we're in high -- mid- to high single digit on hair. We are low single digit on makeup and skincare, and we are in mid-teens on fragrance. So it's clearly fragrance, as I said, fragrance and haircare, which are really driving the biggest part of our growth. And it's, by the way, global, it's across all markets.

As far as the market itself, the growth of the market itself, I said indeed the 4% to 4.5%, as I said in my opening statements, the market did not exactly start as we were hoping because the American market has been slower than expected. And even though China has been a bit better than expected, getting to flattish when it was mid-single-digit, negative in Q4, the start of the year is not exactly what we hope for. But as I said in the annual results conference, most of our hope for this 4 to 4.5 year lies on the second part of the year. And of course, it's very hard today to predict what will be the impact of this international turmoil and tariff wars on consumption itself. And I would say that today, I see no strong results or no hard facts to change my prediction. The only thing I would say is that -- and by the way, had already said it, from the get-go that I see the market more on the lower end of that prediction than on the upper end.

But we'll see. We'll see. It's really too soon to tell. I mean I guess that, like me, you're seeing changes every day. But today, as you know, real hard facts to change the prediction rather just more on the low end. And on restructuring, there's no real restructuring, as you may hear in some other companies. We are -- at L'Oreal, we are constantly reorganizing, doing -- we have this big one L'Oreal project that relies on this IT transformation where we share a number of resources between our countries or between our divisions with one clear objective, which is to combine the scale and the power of the scale of L'Oreal and sharing resources, IT backbone, methods, market analysis, more than we ever did is a strong asset. And at the same time, we want to keep our agility and particularly in markets because in today's world, agility is of the essence.

So yes, it does free resources to be more active on supporting our launches and to be more agile at market level. But it's not -- there's no restructuring per se. We are just sharing more and more things at global level and leveraging more and more data to empower our businesses globally.

[Operator]

Next question is from Charles-Louis Scotti, Kepler Cheuvreux.

[Charles-Louis Scotti, analyst]

I have 3. The first 1 on the U.S. market. We heard several retailers blaming Amazon Premium Beauty to explain their destocking and weaker outlook for 2025. You mentioned channel expansion in your press release. How are you positioned on this accelerated online shift in the U.S.? And do you think you can eventually disrupt your business with the brick-and-mortar partners? And the second question in the U.S., I think a bit less than 50% of your sales are made locally and over 30% from Europe, is that correct? And by how much you need to raise prices in the U.S. to offset the tariff. And will you have eventually some room to grow your local productions, if tariffs stay in place for longer?

And finally, I'm just curious to hear the secret sauce behind your mid-teens growth for fragrances because we have seen some of your competitors releasing flattish, if not slightly negative organic sales growth in Q1. So I guess it's mostly market share gains, but I'm keen to hear more granularity on your performance on this category.

[Nicolas Hieronimus, executive]

Okay. So several questions. First of all, it's true that overall -- I mean, it's not the U.S. thing. Overall, in the world we live in today, online is growing faster than offline. It's true everywhere. So it's true in Europe, it's true in India, it's true in China, and it's true clearly in America and even Latin America. And our strength in digital is a clear asset for us. It's a way to penetrate markets, where we were struggling to penetrate like India before. And in the U.S., which is a very big market, it's a way to reach our consumers and also sometimes to clean the market because if I take a great -- I think a good example is because you're referring to the potential impact of being online on our brick-and-mortar partners.

I would take one very straightforward example, which is a professional division, hairdressers are and still are selling our Kerastase shampoos, but we have opened Redken or Matrix to Amazon or and Kerastase to Sephora and sephora.com. And in all instances, our partners -- salon partners were grateful for us to do so because being on these channels officially allowed us to clean the gray market because you have to be totally clear that most of the brands are present online and on Amazon. The difference with being officially there and/or unofficially is that you have a better control of the image, of the price, and our consumers expected us to be there.

And today, if I take a brand like Kerastase, it's growing very strongly online, in selective and offline in salons. So it is, of course, something that has to be managed carefully. It means that if I take the Luxury brands that are on Amazon in the U.S., first, not all of our brands are there. We just opened Kiehl's last year. We had Lancome, a few fragrances. But it's also a model where it's -- I don't want to be too technical, but it's a 3P model, which means that we are operating the site, we are controlling the aesthetics and the price at which we sell.

So we are contributing to Amazon having the most complete selection, but without being creating unwanted competition with our offline retailers. So overall, it's -- as always, it's a subtle balance between making our brands -- putting our brands in the hands of consumers, but at the same time, protecting the image and the growth of our historical partners, and we have no complaints of any of them. So I think it's a system that works as long as it's managed professionally and carefully.

On -- well, I'll stick to fragrance and then I'll go to the tariff questions on production. On fragrances, you always have to be humble with fragrances because I think of all the categories it's the one where it's as much art and intuition as it is science and consumer research. And I must say that I'm blessed with the team that does a phenomenal work at combining both. I think we have to be fair. We have great brands, brands that are hot, Prada, Yves Saint Laurent. Now we are not -- we haven't started yet, but we are about to launch our first Miu Miu fragrance. And there are, I could call several brands, Ralph Lauren has got exciting projects.

So it is -- I think we have great brands and the capacity of our -- both our fragrance creators and marketing teams doing a great job on this. So I'm saying we have to be humble because it's never guaranteed. And by the way, we still have areas of opportunities in the most premium parts of the market, the collection and niche fragrances. But overall, I'm pretty pleased with what I see. And I have an extra advantage over you is that -- I know what we're about to launch for fall, which is prior to the big holiday season several of our brands, and there are very exciting launches to come, and I hope they'll have the same positive fate as the ones we have put on the market so far.

Going back to the tariff thing. Today, the numbers you mentioned are -- the assumption is right. The numbers you mentioned are correct, considering the U.S. Indeed, it's -- as a weight of turnover, it's a bit shy of 50% that is manufactured in the U.S. and 30% comes from Europe. The rest comes from Mexico, Canada and a few other parts of the world. So first of all, most of our CPD brands, CeraVe are manufactured in North America. So what is exported is mostly Luxury. And to answer your questions, we -- indeed, there are several ways to mitigate these tariffs impact, which we hope not to be withheld. But if there are, there are several ways to for this to be mitigated. One is price increases because it's on categories that are in the Luxury sector, you have a bit more pricing power.

Of course, we had built some inventory prior to the -- because we couldn't say that these tariffs were unannounced even though the magnitude has been a bit higher than expected, but we had built inventory on several of our brands. So whatever is confirmed, will mainly impact our second half in terms of margin impact. So we can take prices up. We have built inventory. And yes, we can relocate some of our productions. But of course, we don't want to make -- the good thing is that we have factories in every -- basically in every region of the world. But we don't want to take any measures that's -- on something that might be temporary. So we are watching carefully what's happening and trying to figure out what will be the end game. And then if according to what's decided, we can take relocation measures.

[Operator]

Next question is from Celine Pannuti, JPMorgan.

[Celine Pannuti, analyst]

I hope you can hear me now. I have 2 questions. Maybe staying on the U.S. Could you say -- I think you grew 0.5%, whether there was any destock within that? Or in fact, stock build as well benefits maybe some of your retailers loading some of the European Luxury brands. And if you could help us as well understand the trend within the quarter in the U.S.? And what -- I mean from a category perspective, where you see the most weakness versus your expectation, which Nicolas, you mentioned at the beginning of the call. That's my first question.

My second question is to try to understand as well the guidance. So you are -- when you said that progressively improvement in growth rate, what is the base that you expect for Q1? Should we look at the 1.5 or the 3.5. And on the market growth, which I believe was probably around 1% at the start to the year, and I understand maybe difficult to predict yet what second half would be. Could you help us understand maybe market growth in U.S. and Europe where you say that both of them seems to have slowed?

[Nicolas Hieronimus, executive]

Okay. So in the U.S., there's no particular inventory building. The only thing that where we might have had a bit of -- first of all, there was no inventory reduction. Aside from the comparative of last year's IT sales, of course. There was no inventory reduction and no inventory building either. There was clearly one of the divisions where we had the biggest new product intensity was Luxury. So that's probably the division where we invoiced a bit more than we sold through in the U.S. But overall, I think we are fine overall in terms of inventory.

And in terms of softness of the market, where the market was in terms of -- compared to expectations where the market was slower than expected, it's mostly in makeup. Makeup was, whether in mass or luxury, was really -- I don't know if it was affected by the lack of morale right now or also because right now, as always, in makeup, the trend is more and what they call the me but better trend. So there was a bit less makeup on and less colors. That's always cyclical thing.

So that makeup was the category that was the most below our expectations. Haircare was pretty steady. Fragrance indeed slowed a bit, but not us. So that's the good news because we increased probably our market share gains in fragrance. And in skincare, as we've seen in prior quarters, the derm market slowed -- has slowed in the U.S., even though depending on our brands, La Roche-Posay continued to do good, SkinCeuticals bounced back, and CeraVe remains right now challenge.

Overall, as I said in my opening statement, we are more or less in line with our projections, slightly on the lower end of our prediction with -- for the market. So nothing really changing in our projection for the future. Our estimation of the market for the -- for Q1 is closer to plus 2% than plus 1%. So -- which is why, again, depending on what's happening on the second part of the year, where the comparatives are significantly lower. I still believe we can be not too far from that plus 4% growth rate for the market.

And by regions, as I said, right now, Europe and Europe is still holding quite well overall, maybe France -- with the exception of France, Southern Europe continues to be pretty dynamic, Eastern Europe, too. So in the end, there's not a lot of new things since last time we spoke. The only thing I can say is that I went to both to China and to the U.S. over the last couple of weeks. And I felt indeed an American market that was less dynamic than expected and for some categories, like makeup and mass, even negative. And on the other hand, it just come back from China, whether the market was overall flattish on Q1, which is not great, but compared to the mid- to high single-digit negative on the second half of the year shows an improvement. And by the way, we did beat that market. So overall -- so -- yes, so we are -- of course, there's no certainty looking ahead, considering the context, but we are moving according to plan.

[Celine Pannuti, analyst]

Can I just stay on China, there was an article recently, where your head of the country spoke about a 5% aim for China, L'Oreal this year, can you concur?

[Nicolas Hieronimus, executive]

Yes. I don't confirm. I called them because -- as I just came, we have just had a meeting together. And I challenged my team, I said, "Guys, the President of China gave an objective for his own growth at plus 5%. You have to give yourself an ambitious objective." So he probably came out of the meeting with me with a little bit of boost and commented on that number. We never give such accurate number, but what is for sure is that I expect my team to have a positive growth in China this year and that's what they are expected to do. We have new brands. We are opening in new cities and some -- again, some products and divisions are doing great. We are above market in Luxe. We are very significantly growing in Derma and Professional. And one division that remains slightly below market in China is CPD, even though L'Oréal Paris is doing a good job. But overall, there's a stronger competition in mass. So that's where it's a bit harder. So no, he was a bit -- my Chinese CEO was a bit euphoric. But overall, we have to be positive.

[Operator]

Next question is from Jeremy Fialko, HSBC.

[Jeremy Fialko, analyst]

So I've just got a couple more on the U.S. so the first one is, I know you've given us quite helpfully the detail on some of the kind of categories in the U.S. But can you talk more generally about the consumer in the U.S.? Were there any particular sort of income groups or demographics or just any things like that you could talk about as to what -- where the slowing was most pronounced within the period?

And then the second one is on this whole question of tariffs. Now clearly, there are going to be competitors who might actually rely more on imports or more on imports from China than you do. So is there anything you've seen in terms of competitors having to raise their prices quite a lot in order to offset the tariffs or anything like that, that you might be anticipating that could actually give you some degree of kind of competitive advantage in the market when other people are forced to price up and you're not?

[Nicolas Hieronimus, executive]

So in terms of demographics or in terms of consumer behavior in the U.S., the only thing I can say, which I've read, like you probably, is that the latest number on consumer confidence in the U.S. have gone down, and they are lower than in Europe right now. So we know that usually, it affects spending on any category and in ours and maybe the growth on makeup or the lack of growth on makeup has been impacted by this.

Then there are things that I have heard other people say, but to be honest, I haven't seen any hard facts on that effort, some people saying that the Latino consumer considering the entire immigration situation was a bit more shy in terms of its shopping habits and going to stores. But frankly, this is hearsay, say, so I can't call really endorse these facts. It's just some things that were -- that people were saying, but it's clear that the climate right now in the U.S. is a bit less positive than it was in -- at least in people's mindset that it was a couple of months ago. So we'll see how things evolve. If the morale of people follow the curves of the stock market in the U.S., you can clearly have a few highs and a few lows.

And going back to the tariff thing, we haven't seen anything short term because obviously, I guess, we're not the only ones to have had some inventory. But what is true is that, in the world of indie brands, very clearly, there are -- many of them are -- have been relying a lot on China. If I take one of my favorite brands, which is NYX Professional Makeup over the last couple of years, we've really worked at reducing the exposure of NYX to Chinese imported products. I think now it's around 20% of -- which is not nothing, but it's only 20%. And we know that some of our very direct competitors are closer to 80%. So at some point, it is tariffs and then particularly the tariffs against China are confirmed and stand, it will indeed benefit some of our brands and makeup in particular, but it's too soon to say, too soon to see anything anyway.

[Operator]

Next question is from Olivier Nicolai, Goldman Sachs.

[Jean-Olivier Nicolai, analyst]

I will stick to 2 questions. So just following up on the U.S. I think you were losing market share in makeup last year, particularly in H2, mostly around the Maybelline brand. It doesn't seem to be the case from what we could read this afternoon. Could you give us perhaps a bit more color on what you've done to reverse share losses? And if Maybelline is now back in line with the rest of the market?

And secondly, on Brazil, that appears to be contributing very nicely to L'Oreal growth, mostly through haircare. How much upside do you see on Brazil? Or what do you think you are in the journey there?

[Nicolas Hieronimus, executive]

So on makeup in the U.S., we are indeed in CPD because that was really -- we have done a better job on Luxe, but it was mostly through Saint Laurent, and I still think we are -- we still have to win share on Luxury because some of our indie brands are not doing or ex indie are not doing as good as I'd want. On mass, it was clearly a loss of market share last year. And this year, we are winning share. So it's a bit everybody. NYX continues to be very strong. L'Oreal Paris is doing great on makeup in the wake of the Panorama Mascara launch, which is already a year old, but continues to thrive plus a few new products.

We have a new mascara launch that's called the Big Deal, Lash Paradise Big Deal. So I guess, between Elsève Growth Booster and Big Deal, maybe we are creating positive omens for our brands. Maybelline is in a recovery mode. We have some of the new products we've launched, Teddy Tint, et cetera, are doing good. But it's -- I would say Maybelline is more on par with market and not really gaining share at this point. So it's -- of all the makeup brands, it's the one that still has some -- so it's also the biggest one. So it's probably the one that's most affected by the market difficulty right now, but it's improving. So great on NYX, great on L’Oréal Paris and getting better on Maybelline.

And on Brazil. On Brazil, haircare is a fantastic success story. I must say we have -- and it continues, by the way, the interesting thing on Brazil right now is that we have I would say, finally, because it's been a long unwinding road, we have a break in Garnier skincare. We've launched new products on Garnier, which has our moisturizers with a very impressive breakthrough formula from our lab, which is a formula that's both very moisturizing and super dry on the skin. It's called -- it's a Garnier Toque Seco, which means dry touch moisturizer. And the thing seems to be really flying off the shelves and really loved by the young generations of Brazilians because precisely, it's is the ideal cream for all those who hate moisturizers because it makes your skin greasy in the sun. And that is -- they can come out of summer. That's a good start.

So I think we have good -- the only part of the -- of our catalog, which is not doing phenomenal today in Brazil, is -- which was already very big, is Dermatological Beauty, but as we have strong plans coming back in the second half. So overall, it's -- I think CPD -- to take your expression, CPD has a lot of headroom still to grow because we are only -- we've already really made it in hair right now. And I think we can do a great in skin.

[Operator]

Next question is from Sarah Simon Morgan Stanley.

[Sarah Simon, analyst]

Yes. First one was just around phasing. In terms of the benefit in North Asia, should we expect all of that to be reversed in the second quarter? Or will it spread across the year? And just back on what Celine had asked about, in terms of the progressive improvement, I'm assuming it's fair to think that given you'll have this headwind from the unwind of North Asia versus the underlying growth that we should expect improvement through the year. And then the second question was just on Walmart pushing more aggressively into beauty. Is that significant for you? I mean did you benefit from that in Q1? Or would you regard that as just part of the usual kind of retailer movement?

[Nicolas Hieronimus, executive]

Well, first of all, on the growth over the year, I think the -- we see the acceleration really more a second half story than necessarily a quarter-by-quarter acceleration. And indeed, it has something to do with the North Asia comparatives. And also, it's the beginning of the slowdown of the value effect in our own numbers and in the market numbers. So we -- it's -- we always phased our year with a slower -- at least in our planning, in a slower first half and a stronger, better second half. So we'll see how things unfold. Of course, you have new products, some will be great hits and that will allow us to go faster, and I hope they all are, but I don't know yet.

But it's more a second half story. We also have -- we will have -- we'll be entering in the second half, not -- of course, the comparative is North Asia, but it's really -- within North Asia, it's Travel Retail because the story of Travel Retail is that Travel Retail Asia remains very negative and set out today, both Hainan and Korea, which were what we call the downtown stores in Travel Retail have really lost traction with the reduction -- the healthy reduction of daigou's and it's more airports over the world that are driving the growth of travel retail. But the second half of last year, we were already in sellout in negative territories in strong negative territories for Travel Retail, but that will be part also of the easier comps. So that's the -- that's what I can tell you on the progressive acceleration.

And sorry, what was your second question because -- yes, Walmart. On Walmart, I wouldn't say that we benefited from their acceleration into beauty. We are actually encouraging them a lot to focus more on beauty. But there are -- today, if I look at the situation, there are some positives and negatives. The positive is, indeed, they are wanting to accelerate in beauty, and they are one of our strongest partners in North America. And of course, we are absolutely determined to support them in their own desire to accelerate in beauty, particularly, of course, for all our mass products, but also for our mass medical brands, such as CeraVe ’and or even La Roche-Posay.

But the other hand, if I'm sincere, I was -- I visited a very beautiful Walmart a month ago. And right now, they have taken these anti-theft measures where they have locked on the windows, makeup and skincare in their stores. And of course, that has a very negative impact on the sell-through of beauty. And if I look at year-to-date, our -- the sell-out in the Walmart is not positive. So the good thing is that we -- there were some Canadian retailers that gone in that same direction a couple of -- last year or 2 years ago, and we've proven to them that it was -- in the end, it was more detrimental than beneficial.

So right now, yes, Walmart is more into beauty, but if they want to sell beauty, which is partly an impulse purchase, having to call sales assistance that comes from the other side of the store to sell you or to give you a lipstick is not necessarily the best way to accelerate beauty. So that's part of the discussions we have with the Walmart team. And I must say they are very -- they are very positive about working on these issues and developing the category because it's a big potential for us and for them.

[Operator]

Next question is from Thomas Sykes, Deutsche Bank.

[Tom Sykes, analyst]

Yes. Just firstly, on the IT transformation. Could you say whether, for the full year, you expect IT switch over to be positive, negative or neutral? And how much of the global revenues are currently on the new system. So how much have we got further to go. Sorry, I guess in addition to that, you didn't quite answer the phasing of when this quarter's benefit would reverse? So any view on that, please?

And then just on FX. You've given the FX at the end of March, but obviously, things have moved quite a bit then. I don't know whether you could give a view on the spot impacted FX and perhaps importantly, the net financials number. I don't think you've given a guide on that yet. And presumably, that's impacted by derivatives in there, yes, please.

[Christophe Babule, executive]

Okay. So I'll take both questions. The first one is on IT. I can tell you that the implementation of our new IT system is going quite well. We just launched China that was early April, and it was a very successful one, and we have a couple of big countries yet to come by end of this year, U.K. and Australia. So difficult to assess exactly what would be the net impact, but I guess it will be minimal. So for the full year, we should not see any big discrepancy between this year versus last year.

[Nicolas Hieronimus, executive]

Usually, it reverses the following quarter. We never put like 6 months inventory. So...

[Christophe Babule, executive]

It's always a small 2 to 3 weeks inventory. So it disappears after 1 or 2 months. Then regarding FX. So of course, very difficult today to predict because U.S. dollar was at 1.03 just a couple of weeks ago. Today, it's close to 1.15. So I don't have some simulations basically. When you look at the sales, if, for example, we keep the current exchange rate at 1.15 versus the U.S. dollar for the full year, then probably the impact will be at around 250 to 290 basis points on the net sales, a negative impact. Now we will see. It's very volatile. So I will not reach any conclusion as of today.

[Nicolas Hieronimus, executive]

But of course, we've hedged our internal...

[Christophe Babule, executive]

And as you know, of course, our internal transactions are fully hedged. So of course, we are pretty well protected on the P&L. So no impact if rates keeps the current situation.

[Tom Sykes, analyst]

The net financials, sorry, impact of FX, I guess, there's derivatives in that?

[Christophe Babule, executive]

What I can tell you is, for the time being, when I look at the FX impact. So I compare the current hedge rates of this year versus last year, we have a negative impact. So this has been factored already when we build the budget. So we have a negative impact, actually, which is in the range of EUR 50 million and mainly impacting first semester.

[Operator]

Final question is from Ashley Wallace, Bank of America.

[Ashley Wallace, analyst]

I actually have 3 from my side. The first one is on Mainland China. You mentioned that the beauty market growth in Mainland China was close to flat in Q1. I was wondering if you can share how L'Oreal performed in that context, both from a sell-in and a sell-out perspective. As I think last year in Q1, you still had a pretty tough comp from it -- from sell-in. And then maybe any color you can give on like value versus volume trends in your China business in the quarter?

The second question is just on U.S. distribution. That market has seen pretty dramatic change over the last couple of years, especially if you think about, I guess, Amazon taking share versus drugstores losing a lot of share. Can you maybe help us contextualize what percentage of your business comes from, say, like Amazon drugstores and the specialty beauty retailers at the moment and how that compares to a few years ago, even if there was like broad comments.

And then the third question is more of like a last question on the IT phasing. I think last year, you had EUR 130 million benefit from IT phasing. So it was like a headwind this year, and you're saying that the net benefit in total this year is EUR 100 million so far in the first quarter. So the gross benefit to the first quarter '25 being around EUR 230 million. I think when I read the statement from a regional perspective, that ties into 850 basis points benefit to Asia. However, when I look at it from the perspective of the division, you say 300 basis points benefit to L'Oreal Luxe, which seems to only account for half of the benefit of the IT phasing. And I was wondering if you can help us understand where the other half of the phasing benefit is accounted for from a divisional perspective or if my math is wrong.

[Nicolas Hieronimus, executive]

All right. So on the Mainland China, indeed, the market was flattish, and I don't know if it's like minus 0.2 or minus 0.3 or something like that. And we are roughly one point above that growth in sell-out. And as I said, we are above the market in Pro Hair with strength of Kérastase significantly above the market in derma with double-digit growth on our derma brands. We are above market by 1 point on Luxury, where, as you know, we are very strong leaders. And I have to say, I was very pleased to see that we increase our share and our share on the global -- on the Mainland market is now significantly superior to our share in the Travel Retail world, which is something that is very important for the health of our business. So we are gaining share.

I think we are also benefiting from the serious work we've done to protect our Luxury business in Mainland China. And as I said, we are below market, where the market is slightly positive and was slightly negative. So overall, we win share, and we win share both online and offline, knowing that the online market is positive, whereas the off-line market is negative. So that's -- I think that's the important information.

Talking about selling is a bit complicated because as you mentioned it yourself, there is a significant chunk of the sell-in, which is the inventory building of our NEO transformation project. So it's -- it will not be -- I would have to be calculated by division, brands, et cetera, which we haven't done.

So what is clear is that we've put a little bit of inventory that will phase out on Q2 and will continue to -- the important thing for us is to win share in sellout. But the most important news for me is clearly the fact that the market seems to be more stabilized, the phasing of some of the holidays, Valentine's Day was a bit beneficial this year. So we'll see whether it's confirmed in the second quarter, the big June 18, 18th of June promotion. So we'll see on China. But I would say the teams were positive.

I met -- when I went to China, I met several officials of the Chinese government, the Secretary of the Guangzhou province and then the Secretary of the Shanghai province, and they were both -- what was interesting is that they were both talking a lot about boosting consumption about the fact that the real estate crisis was according to them, again, a bit more behind. So there were I felt, if not confident, at least real determination to boost local consumption. Of course, that was before the tariff hikes. So I don't know what all this will generate, but there was at least a focus on boosting consumption from the Chinese authorities.

On U.S. distribution, I'm not going to give you all the details, but clearly, the weight of e-commerce has increased for us. The U.S., as I've said several times, is one of the rare countries where our share of online was below our share of offline, and it still is. But we are progressively catching up with the -- of course, the development of Amazon, but also working with the walmart.com or sephora.com. So the online is accelerating in the U.S. and it's very positive for us. And clearly, drugstores, as you mentioned, are lowering in our -- in the weight of our business because they are struggling themselves to be successful in the U.S. market.

I don't know if you want to add anything, Christophe, on that topic.

[Christophe Babule, executive]

I can answer on the third question because you wanted to know a bit what is the split by division. So of course, a big impact on Luxury. And then the second division that is most impacted when you compare the IT implementation in 2024 and 2025 is, of course, our Professional Products division where here, the growth is impacted, and it's nearly 800 basis points. On the remaining 2 divisions, it's marginal.

[Nicolas Hieronimus, executive]

Okay. Actually, I think you were the last one. So we are wishing everyone who's still on the call, Happy Easter. And hopefully -- well, not hopefully, we will be speaking to you in a couple of months.

[Christophe Babule, executive]

Thank you very much, and Happy Easter.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.