L’Oreal Q2 results show good ‘bounce back' year

By Simon Pitman

- Last updated on GMT

Related tags Economics Europe

The latest results from L’Oreal underline a strong recovery but could also point to difficult comparables and further hardships in Western Europe, analysts believe.

“As expected, growth decelerated from the exceptional Q1 growth of 7.4 per cent, although Q2 growth of +5.2 per cent can still be considered fairly good,“​ stated Sanford Bernstein analyst Andrew Wood in a report.

On a reported basis sales grew by 12.4 per cent and by 5.2 per cent on a like-for-like basis to €4.95bn for the second quarter, compared to a figure of €4.4bn in the same period last year.

Wood also pointed out that while overall sales gains for the quarter were generally good, he described the 4.1 per cent increase in the mainstay consumer division as ‘somewhat disappointing’.

Luxury surprises with good performance

On the other hand, the performance in the luxury division, where sales grew by 7.6 per cent, was noted as being ‘much more resilient than we had expected’.

Luxury proved to be the segment of the market that was hardest hit during the height of the economic downturn last year, causing many consumers to shy away from more expensive products and purchase mass market or private label alternatives.

Although market experts had feared that consumers would not return to their up-market spending patterns quickly, L’Oreal’s luxury division sales performance underlines that this has occured with far greater speed than was generally expected.

New markets shine, Europe does not

On a geographical basis, a strong performance in the company’s new markets, and improvements in the North America market, are helping to counterbalance a relatively stagnant performance in Europe.

The report highlights the fact that prospects for consumers throughout Europe look relatively bleak, giving reason to ‘lingering’ worries about the region.

On the other hand, L’Oreal says it is bullish about prospects for the China market, a belief that is backed up by the Bernstein analyst, given that economic growth is continuing and the fact that there are still opportunities for further expansion within the High Performance Company (HPC) beauty segment.

Prospects good, but stocks 'overvalued'

“After a difficult 2008 and 2009 for L’Oréal with weak or negative sales, margin and EPS growth…we do expect a bounce back in 2010 and beyond,”​ the report states about the company’s prospects for the rest of the year.

Sanford Bernstein is expecting average top-line performance of 6.3 per cent –a figure that is above the European average – backed up by ‘good’ operating improvements and EPS growth.

However, overall the financial analysis concludes that: ‘L’Oréal continues to trade at a significant and, in our view, undeserved premium to its European HPC peers and we consider the stock to be expensive’.

L'Oreal's full Q2 results, including net profit, will be published on 25 August.

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