L'Occitane Earnings: Increased Spending and Lowered Guidance Raise Privatization Prospects

L’Occitane’s second-half fiscal 2024 results disappointed, falling short of both our and consensus expectations. This underperformance stemmed from higher-than-anticipated marketing spending, which weighed on profit margins. Adding to the concerns, management lowered its medium-term guidance without providing a clear rationale. However, we do not expect the share price to react negatively due to the existing privatization offer from L’Occitane’s CEO. While shareholder approval is still pending, these lackluster results could increase the likelihood of the offer's acceptance. Consequently, we have lowered our fair value estimate to HKD 34 per share from HKD 37, aligning it with the privatization offer.