Clarins' profits fall due to rising promotion costs

By Katie Bird

- Last updated on GMT

Related tags Profit Marketing

Despite breaking the €1bn sales mark in 2007, profits at Clarins
Group suffered during the year due to increased spending on
promotional and advertising campaigns.

The France-based company announced in February that 2007 sales rose 4.2 per cent to €1.0075bn, however the full year financial results reveal a 12.5 per cent drop in operating profit compared to 2006 figures.

Increased spending on advertising and the promotion of new launches and the Clarins brand in general have been cited as reasons for the profitability drop.

Declining operating profit Operating profit declined to €111.4m from €127.3m in 2006.

The strengthening of the euro had a significant negative effect on these figures but increased costs were also to blame.

Marketing and promotional efforts responsible for this decline included special events, promotions and the opening of boutiques as well as the renovation of the Group's website which now offers online sales.

This resulted in an increase in selling expenses as a percentage of sales from 47.7 to 48.5 per cent.

In addition, an increase in manufacturing costs as a percentage of sales from 29.1 to 30.6 per cent also affected the profit figures.

The group stated that the increased production and distribution of samples in connection with promotional campaigns was the main reason for this increase.

In terms of profitability by sector, the group's beauty sector suffered a drop in operating margin from 15.1 to 11.9 per cent, whereas the perfume sector maintained its operating margin at 9.3 per cent.

The beauty sector results reflect the launch of the My Blend range as well as the increased commercial investments to support skin care and makeup sales; however there were no major launches in the perfume sector during the year and so little increased promotional expenditure.

2008 predictions According to the company these results are in line with its long term plans.

"Our objective is not simply to achieve rapid sales growth but rather to lay solid foundations to ensure the long-term notoriety and positions of brands through effective advertising and promotional investments," wrote Christian Courtin-Clarins in a statement to shareholders.

He went on to note the limited growth prospects for the cosmetics industry in general for the year ahead, although the company still aims to record sales growth of twice the rate of the overall market.

The continued rollout of the My Blend brand and the distribution of Kibio products through international subsidiaries along with a number of new fragrance projects are hoped to boost 2008 sales.

Furthermore, the company noted that a positive net cash balance and net financial income has 'enhanced our ability to pursue internal and external growth projects.'

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