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L'Oreal growth still strong but US performance trails

By Simon Pitman , 17-Oct-2006

L'Oreal has reported continued strong growth for its second quarter, ending in September - but the US market proves tougher as retail conditions and distribution problems continue to make it a challenging market in which to remain competitive.

Global like-for-like sales for the world's largest cosmetic company grew by 5.6 per cent during the period, to reach €11.6bn, a rise of 8.3 per cent in reported terms and 5.6 per cent in like-for-like terms.

But reflecting its size, the figures also reveal a significant variation, both in respect to geography and to the company's five divisions.

 

The recent addition of the Body Shop helped to boost the company's performance significantly, whereas its performance in the North American market was relatively slack, particularly in comparison to the performance in developing markets.

 

Currency fluctuations had a positive impact of 0.9 per cent, whereas the net impact of the Body Shop was said to have been a major force in the 1.8 per cent net impact of changes in consolidation.

 

Although L'Oreal CEO Jean-Paul Agon pointed out that the figures for western Europe confirmed sustained growth and other markets showed rapid expansion, he pointed out that its performance in North America "remains affected by consolidation in the retail market."

 

Sales in the US market amounted to €2.97bn, representing growth of 2.4 per cent on a like-for-like basis.

 

L'Oreal cited problems with distribution as being the primary problem in the US market, stating that its performance in the luxury and professional product divisions had been particularly hard hit.

 

Analysts say that the results show there is a slowing in the US retail market, which is clearly evident in L'Oreal's performance there. Indeed, both UBS and Goldman Sachs have cut their rating on L'Oreal's share stock, citing its belief that market conditions in the US are set to become worse.

 

However, the company's sales in the all-important European market came in at €5.29bn, representing a growth of 3.7 per cent on a like-for-like basis.

 

And the best performance came from its other markets, which are predominantly in countries with developing economies, with like-for-like sales growth coming in at 12.2 per cent to reach €2.97bn.

 

In particular sales growth was strong in Central and Eastern Europe, where like-for-like sales grew by 21.2 per cent to reach €603m. The company said that the highlights of the performance included a strong performance from the L'Oreal Paris brand, and significant growth for the professional products division.

 

Latin America also has a particularly strong performance, with like-for-like sales growing by 16.6 per cent to reach €744m. Highlights included the Brazil and Mexico markets, with L'Oreal professional hair colourants and, again, sales of the L'Oreal Paris brand in the consumer division proving to be particularly strong.

 

Looking at L'Oreal's five divisions, like-for-like growth was again strongest in its active cosmetics division, where the figure was up 12.4 per cent to reach €895m, with all brands in this division experiencing double digit growth.

 

At the other end of the spectrum, like-for-like sales growth in the company's professional product division came in at 3.4 per cent. The company said that its performance for this division had been particularly hard hit in the US, where distribution problems experienced in the first quarter are still impacting results.

 

Looking to the future the group said it was anticipating that growth would be sustained for its second half results and that profit levels would continue into double figures.

 

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