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L’Oreal releases H1 figures overshadowed by slower Q2 growth

By Simon Pitman , 30-Aug-2011

Although L’Oreal posted strong overall growth for the first six months of the year, analysts believe the outlook should be cautious

Sales for the first six months of the year grew by 5.0 per cent to reach €10.15bn, while on a like-for-like basis the figure was 5.2 per cent and excluding the negative impact of currency translation the growth was 5.9 per cent.

“L’Oreal’s H1 Organic growth was dragged down by a fairly disappointing Q2, coming in well below the consensus of 5.9 per cent and Q1 of 5.8 per cent and despite easier prior year compares,” said senior research analyst Andrew Wood, from Sanford C. Bernstein.

Latin America and Asia Pacific lead the drive

The company underlined the fact that sales were driven by strong growth in the developing markets of Latin America and Asia Pacific, combined with sustained growth in North America.

However, the company’s weakness lay in the European markets, which have failed to sparkle in recent quarters. In particular the second quarter showed a big drop in Eastern European sales, with Ukraine and Russian markets being the worst performers.

Overall reported sales in Western Europe grew by just 1.4 per cent in the first half, to reach €3.76bn, while reported sales in Eastern Europe fell by 3.8 per cent to reach €680m.

Eastern Europe 'very disappointing'

In analyst notes filed yesterday, Wood referred to the problems in Eastern Europe as being ‘largely L’Oreal specific’, and went on to describe the performance in the region as ‘very disappointing’.

With respect to the company’s four business divisions, the luxury division has continued to recover after the marked decline seen in 2008 and 2009, with the company attributing the performance to the Lancôme, Giorgio Armani and Kiehl’s brands, which it said were ‘remarkably robust’.

Reported sales for the luxury business grew by 6.9 per in the first half of the year to reach €2.25bn, while the mainstay cosmetics products division recorded reported sales growth of 4.5 per cent to €5.04bn.

First half shows underlined market contrasts

“Performance in the first half of 2011 confirms the group’s good growth dynamics, in a market that reflects contrasts across distribution channels and geographic zones,” said Jean-Paul Agon, chairman and CEO of L’Oreal.

Wood believes that L’Oreal will have a better second half of 2011, citing easy comparisons for 2010, together with continued pricing improvements.

In the notes, Sandford Bernstein predicts that second half sales should rise by approximately 5.6 per cent, which will put the H2 sales ‘marginally’ ahead of the H1 performance.

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