By and  on September 6, 2005

L'Oreal Net Drops 5.8% in First Half
PARIS — French beauty giant L'Oréal posted first-half net profits of 892 million euros, or $1.14 billion, down 5.8 percent year-on-year.

As reported, these came on sales of 7.16 billion euros, or $9.18 billion.

L'Oréal's operating profits in the half were flat at 1.12 billion euros, or $1.43 billion. The company's pretax profits dipped 5.5 percent to reach 1.26 billion euros, or $1.61 billion, versus the prior-year period. All dollar figures are calculated at average exchange rates.

The turnout, which was announced at a financial analyst meeting Friday at L'Oréal headquarters in Clichy, outside of Paris, was lower than most financial analysts' predictions.

"The numbers are not what I expected," said Eva Quiroga, an analyst at UBS. "I am disappointed, although I think L'Oréal can make their full-year targets. The encouraging news on the top-line front is that the exchange rates continue to help, while underlying growth should remain solid — especially in the third quarter — with a slight shift in the volume-to-value equation in favor of the latter."

For the year, L'Oréal's chairman and chief executive officer, Lindsay Owen-Jones, estimates earnings-per-share growth of more than 10 percent and a sales gain of 5 to 6 percent.

This would be due largely to a busy product launch and promotional activity schedule in the second half, which follows on a strong second quarter and weaker first quarter for the company.

However, Owen-Jones reiterated the impossibility of precisely calculating year-end figures from first-half numbers. He likened the process to car racing — among his favorite sports — by saying: "You can't comment on the end of a Formula One race in the middle of a race.

"Irrespective of exchange rates, L'Oréal's results are extremely volatile per half-year. Never would anyone be able to predict a year on half a year," he continued, explaining that the sales of the group's divisions fluctuate depending on the season. The luxury goods division, for example, is more profitable in the second half, in the run-up to the holidays, whereas the active cosmetics division performs best in the lead-up to summer, when women buy slimming products.

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