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Bullish About Beauty: L’Oreal Boosts Outlook as Net Rises 8.4%

The French beauty giant seems poised to post its 23rd consecutive year of double-digit earnings per share growth in 2007.

PARIS — L’Oréal keeps buffing up its business.

The French beauty giant seems poised to post its 23rd consecutive year of double-digit earnings per share growth in 2007, according to its chief executive officer Jean-Paul Agon. He also raised the company’s organic sales growth target range to 7 to 8 percent, from 6 to 8 percent, for the year — his first one fully at the helm.

Agon became L’Oréal’s ceo in April 2006. Since then, he has increasingly put his imprint on the job and how the company does business. His flexible, wide-ranging focus includes everything from emerging markets — such as China, India, Russia, Brazil and Mexico — to new avenues of growth in the masstige and “bio-organic” categories of products in its sights. There have also been recent acquisitions in the salon distributor category in the U.S. to help broaden the business.

And the strategy seems to have been paying off. L’Oréal posted net profit after minority interests of 1.18 billion euros, or $1.57 billion at average exchange, up 8.4 percent in the first half of this year versus the same period last year. The company’s net profit excluding nonrecurrent items after minority interests hit 1.18 billion euros, or $1.57 billion, a 8.8 percent gain. L’Oréal’s EPS rose 10.7 percent to 1.94 euros, or $2.58.

As reported, for the first half of 2007, L’Oréal generated revenues of 8.51 billion euros, or $11.3 billion, up 9.4 percent, or 7.7 percent at constant exchange and for continuing operations, versus the first half of 2006.

Total operating profit at L’Oréal, including The Body Shop business that was consolidated since July 1, 2006, came in at 1.44 billion euros, or $1.92 billion, up 8.1 percent. The company’s operating profit as a percentage of sales was 16.9 percent.

Not including The Body Shop business, L’Oréal’s operating profit as a percentage of sales was 17.6 versus 17.1 percent for the first half of 2006.

“Operating profitability, excluding The Body Shop, has advanced by 50 basis points,” said Agon in a statement Thursday. “This improvement can be attributed to the product-value enhancement policy and continuing cost-cutting efforts.”

The net impact of changes in consolidation, resulting from the acquisitions of The Body Shop and Sanoflore last year and this year’s buys of Beauty Alliance and PureOlogy, accounted for 5.2 percent sales growth. Currency fluctuations negatively impacted revenues by 3.5 percent. Minus that exchange-rate impact, L’Oréal’s sales growth was 12.9 percent in the period.

“The first half was marked by strong sales growth and good quality results, which increased significantly compared to a very high reference base,” said Agon. “There was a clear acceleration in sales, reflecting the contributions made by all divisions. The upturn in growth is being confirmed in Western Europe, a gradual improvement is being made in North America and the pace is accelerating in the rest of the world.

“In view of the strong first-half sales growth and the prospect of sustained dynamism up to the end of the year, we are raising our like-for-like sales growth target to the 7 percent to 8 percent range, which is at the upper end of our medium-term growth target of 6 percent to 8 percent,” continued Agon. “The quality of these results strengthens our confidence in our ability to achieve another year of double-digit net earnings per share growth in 2007.”

During an earlier interview in Paris that appeared in the May edition of WWD Beauty Biz, a sister publication of WWD, Agon elaborated on the global dynamics that largely drive his vision of growth. “We computed that every year, roughly 70 million new [consumers] in the world gain access to a level of income that allows them to buy our brands and products,” Agon said then, noting that globalization is one of the most powerful pistons in the L’Oréal growth engine.

What has always been quaintly referred to as “the rest of the world” is now bigger than L’Oréal’s sales volume in North America. “They are now almost 30 percent of our business and contribute to 60 percent of our growth,” he said of the emerging markets, predicting that one day “very soon,” these markets will generate 50 percent of L’Oréal’s global volume.

“What we are seeing right now is a completely new condition of the worldwide economy,” he had said in the earlier interview, while discussing China, India, Brazil, Mexico and Russia. “Because of the transfer of wealth around the world, these markets opened up 10 or 15 years ago, but it’s really now that they are booming in terms of economic growth. This economic boom creates new social classes and new categories of consumers who now have access to our products. This is a historic opportunity.”